Policy uncertainty: People walk in to the headquarters of ECB in Frankfurt. — AFP
WASHINGTON: The European Central Bank (ECB) is likely to keep interest rates on hold next month but discussions about further cuts may well resume in the autumn if the economy weakens, five sources told Reuters.
ECB president Christine Lagarde said in July the eurozone’s central bank was “in a good place” as it left its key rate at 2%, bringing a year-long cutting cycle to an end and leading investors to bet on a prolonged pause.
Data since then showed the eurozone economy was proving more resilient than expected while inflation hovered at the ECB’s 2% target, central bank officials in Europe and at the Federal Reserve’s Jackson Hole Symposium said.
Meanwhile tariffs imposed by US President Donald Trump’s administration on European Union imports, at 15% for most goods, were close to the ECB’s own expectations and averted the most pessimistic scenarios, the central bank sources said.
This meant that a rate cut on September 11 was now largely seen as unnecessary, barring a sudden worsening in incoming data such as a flash inflation reading for August and economic activity surveys, according to the sources.
They all declined to be named because policy deliberations are confidential.
Equally, the sources noted that the ECB’s latest economic projections, which see inflation dipping below its 2% target next year before edging back to it, incorporate a further rate reduction.
This meant that discussions about further monetary policy easing were likely to resume at the ECB’s Oct 30 and Dec 18 meetings, particularly if US tariffs started taking a toll on eurozone exports to its top trading partner or if hopes for an end to Russia’s war in Ukraine were dashed, the sources added.
An ECB spokesperson declined to comment.
Money markets were pricing in some chance of a further ECB rate cut, but not before the spring of next year.
Investors have grown more optimistic about the eurozone’s economic outlook after surveys showed business activity picked up pace over the summer, with new orders increasing in August for the first time since May 2024.
Some policymakers cautioned this may be due to US importers bringing forward orders from the eurozone to beat tariffs, which would imply a reversal in the coming months. — Reuters
