ECB Meeting – No further cuts

It was a foregone conclusion that the ECB would not cut its key interest rates at today’s meeting. However, with a view to the coming months, there is some hope in the futures markets for one final rate cut. ECB President Lagarde has dampened such hopes:

• The ECB no longer talks about "downside risks" to growth but instead refers to "more balanced" risks. Lagarde attributed this, among other things, to a significant decrease in uncertainty around U.S. tariffs. She highlighted the unexpectedly strong growth in the first half of the year. Accordingly, the ECB has significantly raised its growth forecast for this year from 0.9% to 1.2% (see table).
• Lagarde played down the downward revision of the inflation forecast for 2027 from 2.0% to 1.9%. She called it a "minimal deviation" from the inflation target, which was mainly due to the euro’s appreciation and therefore not relevant for monetary policy. In addition, she pointed out that the ECB had raised its inflation forecast for 2026 from 1.6% to 1.7%.
• Lagarde reiterated that the ECB is "well positioned," meaning it feels comfortable with the current key interest rates.

We see additional arguments against a further rate cut. For instance, core inflation has recently proven to be more persistent. Additionally, the deposit rate at 2.0% remains significantly below the neutral rate, which in the long term supports an inflation rate of 2%. All in all, the scenario of an unchanged deposit rate of 2.0% remains the more likely outcome.

For full text see attached PDF-Version.