According to informed sources, officials at the European Central Bank expect that, based on the latest economic growth and inflation outlook, this round of interest rate cuts is likely to have come to an end.
People familiar with the matter said that unless there are other major shocks, deposit rates, which have been cut eight times (previously reaching 4%), should be able to remain at 2%. As the discussion content is internal information, these people requested anonymity. However, any discussion about raising interest rates is considered premature.
These views are in line with the expectations of economists surveyed before the interest rate decision was announced on Thursday, who predicted that the European Central Bank would keep rates unchanged over the next two years. Investors also generally believe that there is little chance of any movement in rates in either direction in the short term.
The two-year Treasury yield, which is most sensitive to monetary policy, rose slightly by nearly 1 basis point to 2.14% after the release of the report, but the increase later moderated.
While keeping interest rates unchanged, officials raised their economic growth projections and predicted that the inflation rate, which is expected to remain below the 2% target for some time in 2026 and 2027, will rebound to 2% in 2028. However, underlying price growth is expected to be stronger than the headline figures suggest.
A policymaker has warned that if the inflation rate remains below the target level for several consecutive months, monetary policy may be further loosened.
European Central Bank President Christine Lagarde told reporters in Frankfurt that neither a rate hike nor a rate cut was discussed on Thursday.
She said, “Participants agreed that all options should be on the table, and we should adhere to the approach of discussing them meeting by meeting and making decisions based on data. We have not yet determined the future trend of interest rates.”
A spokesperson for the European Central Bank declined to comment.
