Earlier today, news broke that the European Central Bank (ECB) has decided to maintain the current interest rates. Inflation currently sits at around the 2% medium-term target.
The ECB predict similar levels of inflation to the figures projected in June, with headline inflation set to average 2.1% in 2025, 1.7% in 2026 and 1.9% in 2027. They have confirmed their determination for the figures to stabilise at the targeted 2% in the medium term.
With this in mind, a host of industry experts have shared their reactions.
Lindsay James, investment strategist at Quilter, said:
“The European Central Bank has continued its pause in its rate cutting cycle, leaving interest rates at 2%. This marks the second consecutive hold on rates following what had been a rather aggressive year long pattern of rate cuts.
“Soon after the previous monetary policy meeting, the EU agreed its trade deal with the US that placed blanket 15% tariffs on EU exports to the US. In the time since, inflation has held close to the 2% target and the unemployment rate has reached record lows of 6.2%. However, growth has continued to falter, not helped by successive political upheavals, trade uncertainty and an ongoing competitive threat to vital sectors of manufacturing from China and elsewhere.
“That being said, recession has been largely avoided and 2026 may prove to be a turning point with €1 trillion of spending beginning to be unleashed in Germany on its well-publicised industrial renewal. While some economists are anticipating a substantial 2% boost to GDP, structural challenges remain to international competitiveness, and there are no easy fixes.
“Meanwhile, France faces further challenges with yet more political upheaval. There is little expectation that the latest iteration of government will be any more able than its previous constructs to unite the three disparate blocs in making the necessary cuts to government spending, delaying any eventual recovery.
“The ECB staff projections reflect this ongoing uncertainty. While overall they are similar to those shared in June, growth in 2025 is now expected to be 1.2%, up from 0.9% in June. The projection for 2026 has come in slightly lower at 1.0%, and the 2027 figure is unchanged at 1.3%. They also see inflation averaging at 2.1% this year, followed by a fall to 1.7% next year and a slight uptick to 1.9% in 2027.
“Nonetheless, the ECB seems increasingly likely to want to bide its time, so unless something changes drastically, interest rates are widely expected to remain at 2% for the remainder of the year.”
Irene Lauro, Eurozone Economist at Schroders, said:
“The ECB today appears to confirm our view that the easing cycle has ended. With trade uncertainty fading, the euro area’s recovery is set to accelerate.
“Firms are likely to shed caution, boosting corporate borrowing and investment. Labour markets remain tight, with unemployment near record lows, and Germany’s frontloaded fiscal stimulus will add further fuel to the upswing.
“Risks have shifted for the eurozone from trade uncertainty to political instability, with France now in the fiscal spotlight. But the resilience of the economy and strengthening domestic demand means the ECB can afford to keep monetary policy unchanged.”
Konstantin Veit, Portfolio Manager at PIMCO, said:
“The European Central Bank cutting cycle is presumably complete, with inflation at target and resilient growth at trend-like levels. The 2% policy rate is likely a level considered the mid-point of a neutral range by the majority of Governing Council (GC) members.
“We tend to agree with the GC majority view, and believe risk to the medium-term inflation outlook remains broadly balanced. We think the ECB will want to preserve conventional policy space and will aim to minimise the risk of having to reverse course shortly after having reached the terminal rate. Its 2025 strategy assessment provides the ECB with additional wiggle room, suggesting a somewhat higher tolerance for modest deviations of inflation from target.
“While we agree with the market pricing in some probability for additional easing, to protect an “on target” projection for 2027, we see a high chance for the cutting cycle having already concluded at the current 2% policy rate.
“Overall, we do not believe the ECB’s reaction function is geared towards fine-tuning policy, and, in our baseline, expect a prolonged period of inaction on policy rates.”
Luke Bartholomew, Deputy Chief Economist at Aberdeen, said:
“No surprises in the European Central Bank (ECB) decision today, which was always going to involve keeping policy on hold. The more pressing question is whether the ECB has finished easing or instead is pausing briefly before delivering more cuts in the future. The economic forecasts do seem to be broadly consistent with this easing cycle now being complete.
“If we continue to think the next move will likely be a hike rather than a cut, albeit that this is likely to be sometime in the future. Of course, a very big increase in French borrowing costs could still derail the eurozone’s economy and cause further easing. But explicit intervention by the ECB in the French debt market remains a long way off.”
Nicolas Forest, CIO of Candriam, said:
“With interest rates now at neutral levels, the ECB has largely accomplished its immediate objective of bringing inflation under control. The central bank has shifted into pause mode and has signaled that it will take additional time to assess economic developments amid ongoing global challenges.
“Price pressures remain subdued, with the latest data showing inflation at 2.1%. A stronger euro, lower energy prices, and persistent geopolitical uncertainty are all tilting risks to the downside.
“Growth in the euro area remains modest but resilient, supported by steady consumption and investment. Policy initiatives such as the ReArm Europe plan and the German fiscal package should help cushion the impact of the recently introduced U.S. tariffs, which now apply at a 15% rate to most goods.
“Against this backdrop, the ECB is keeping all options open. Future decisions will depend on whether incoming data continues to improve modestly or whether U.S. tariffs and deteriorating economic conditions in China begin to weigh more heavily on our economy in Europe.
“Meanwhile, the interest rate gap with the Federal Reserve is expected to narrow in the coming months. With signs of a softer U.S. labor market, the Fed is projected to cut rates twice this year. That said, tariff-related price pressures could reemerge, leaving Chair Powell facing both political pressure from President Trump and a shrinking margin for policy maneuvering.”
David Roberts, Head of Fixed Income at Nedgroup Investments, said:
“ECB leaves rates unchanged as largely expected. President Lagarde has done her best to instil fear in the market – paraphrasing her press conference ‘growth and inflation are coming. More rate cuts? No chance’. Those comments were at odds with her own staff forecasts which project no further GDP growth in Europe this year.
“Perhaps the most popular bond market trade this year has been the ‘steepener’– betting long bonds do worse than short ones. If rates aren’t being cut, that now crowded trade has to be vulnerable. Very vulnerable. If only we had exited it last week. Oh, I forgot. We did.”
Mathieu Savary, BCA Research’s Chief Strategist, Developed Markets ex US, said:
“By pausing, the ECB is acknowledging that growth has stabilised and inflation remains sticky. While the recovery looks durable, underlying price pressures continue to ease, leaving the door open to one final cut before year-end.”
Katy Stoves, Investment Manager at Mattioli Woods, said:
“The European Central Bank maintained its key interest rate at 2% today. This marks the second consecutive meeting without adjustment as policymakers navigate an increasingly complex economic landscape across the Eurozone. The decision to hold rates steady has been read by some as the ECB reaching its terminal rate. Indeed, with inflation nicely hovering around the 2% target, the monetary policy stance appears to be delivering the desired price stability outcomes.
“However, the rate hold comes against a backdrop of significant economic headwinds, particularly in the Eurozone’s largest economy, Germany. In addition, ongoing political uncertainty in France and the Netherlands creates additional risks that could impact both market confidence and economic performance across the currency union.
“On the plus side, so far, the costs of tariffs do not appear to be feeding through to data, and with deals gradually being struck around the world, the effect of Liberation Day tariffs is likely to be less than once feared.”
