European central bank pauses again, further easing still possible

Summary

• The European Central Bank (ECB) held its Deposit Rate steady at 2.00% at today's monetary policy announcement, keeping its monetary policy stance on hold for the second meeting in a row. The accompanying statement was neutral in tone and offered little in the way of forward guidance on future policy moves.

• The ECB made only modest revisions to its economic projections, raising its economic growth outlook modestly, while lowering its forecast for underlying inflation very slightly. The ECB projects underlying inflation at 2.4% for 2025, 1.9% for 2026, and 1.8% for 2027. The fact that the central bank's medium-term inflation forecasts are below the 2% inflation target, and the 2027 forecast was revised lower, are modestly dovish signals in our view. The dovish signal from the economic projections was largely offset however by comments from ECB President Lagarde. She said that growth risks were balanced, and suggested the disinflationary process for the Eurozone is now over.

• Despite the overall neutral tone of today's announcement, we expect the evolving growth, wage and inflation trends will still see the ECB deliver one final 25 bps rate cut, to 1.75%, at its December meeting. We expect growth to soften in the coming quarters, reflecting slower employment and income growth, and still subdued sentiment and confidence. Meanwhile, wage and labor cost pressures continue to show a gradual deceleration, which we view as consistent with core inflation converging to target and leading to modest further monetary easing.

European Central Bank pauses for a second meeting

The European Central Bank (ECB) held its Deposit Rate steady at 2.00% at today's monetary policy announcement, keeping its monetary policy on hold for the second meeting in a row. The ECB offered little in the way of new guidance, while making only marginal changes to its economic projections. Overall, our outlook for ECB monetary policy remains unchanged, and we still see potential for modest further monetary easing.

Download the Full Report!