Interest rates in the zone euro will remain unchanged at least until September. The European Central Bank (specifically the Governing Council of the ECB – the equivalent of our Monetary Policy Council) decided at its Thursday meeting, as expected, that this time it will not cut rates. This time, because in June it ordered the first rate cut in several years (five in the case of the deposit rate, eight in the case of the refinancing rate) – by 25 basis points.
Thus, the refinancing rate in the eurozone will remain at 4.25%, and the deposit rate at 3.75%. This will remain the case for at least the next almost two months, until the next meeting (September 12).
Interest rates down in September
It is likely, however, that the ECB will cut rates by 25 basis points again in September. Markets are expecting this.
In our opinion, the economic environment supports further monetary policy easing, but persistent core inflation and uncertainty about further price developments require a balanced approach.
– say Ebury analysts Roman Ziruk and Matthew Ryan. On the one hand, HICP inflation in the eurozone remains stable, at 2.5% in June. The Latest ECB forecasts indicate, however, that it is on a slow downward path and should probably permanently reach the 2% inflation target in the last quarter of 2025. Core inflation has a similar, slow downward trajectory. Here, attention is drawn (as in Poland) to the increased wage dynamics, which particularly increases the prices of services, but this pressure should weaken over time.
At the same time, the eurozone’s economic performance remains subdued, and the ECB’s June forecasts can hardly be described as sensational (GDP growth of 0.9% in 2024, 1.4% in 2025 and 1.6% in 2026).
An additional argument for a rate cut in September should be the vision of an imminent easing of monetary policy by the US Fed during its meeting a week later (September 18).
The ECB, in its statement after the meeting, did not wink at any visible “wink” that it would cut rates in September. It argues that it will make decisions from meeting to meeting, based on incoming data. Although central bankers from the ECB are pleased that core inflation fell in June, they emphasize that “internal price pressures are still high, inflation price services is elevated, and overall inflation is likely to remain above target for much of next year.”