ECB holds rates in September

Bank extends pause as expected: At its meeting on 10–11 September, the European Central Bank (ECB) decided to keep its deposit rate at 2.00%. It also held its refinancing and lending rates at 2.15% and 2.40% respectively. The decision followed July’s hold and aligned with market expectations.

Monetary policy drivers: In justifying the Bank’s decision, President Lagarde noted that the disinflationary process was over and that risks to the economy were more balanced than before. Meanwhile, the Bank announced its latest average inflation projections were similar to those in June: 2.1% in 2025, 1.7% in 2026 and 1.9% in 2027, which reinforced its decision to stand pat. Still, the inflation outlook remains more uncertain than usual amid a volatile trade environment.

ECB to remain on hold this year: President Lagarde said that the inflation outlook is favorable, the Euro area is showing resilience and risks to the overall outlook are more balanced. Accordingly, our panelists continued to withdraw their projections for a last 25 basis point cut by end-2025 and the majority now expects the ECB to stand pat by year-end. The Bank is set to reconvene on 29–30 October.

Panelist insight: Nomura analysts commented: “Nothing in the September meeting statement or press conference make us materially question our view that the ECB will leave rates unchanged for the foreseeable future, particularly as GDP growth is likely to reach its trend rate by mid-2026, HICP inflation is hovering around the ECB’s 2.0% target, and the depo rate is close to the ECB’s view of neutral.” Meanwhile, ING’s Carsten Brzeski said: “We have stressed before that the bar for yet another rate cut from the ECB remains high. Still, there are some valid dovish arguments that could still force the central bank to cut further over the coming months. Just think of the following: a growing awareness among eurozone policymakers in general that the trade framework agreement between the US and the EU is anything but set in stone. The built-in conditionality on many aspects has left sufficient room for new escalations. But also think of the stronger euro exchange rate and a core inflation forecast of below 2% for 2026 and 2027.”

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