“It is practically certain that the ECB [European Central Bank] will maintain interest rates, making the July meeting the first of the year without interest rate cuts being announced. Markets expect the ‘deposit’ rate to remain at 2%, with a near 100% probability,” stated BPI Research ahead of this meeting.
According to BPI Research, the pause aligns with the new monetary policy strategy presented by the ECB at the beginning of the month, which “recognizes the existence of a structurally more uncertain and volatile environment, advocating the need for flexible action.”
In the last monetary policy meeting on June 4th and 5th in Frankfurt, the ECB decided to lower its main reference rate to 2.0%, marking the seventh consecutive reduction.
Since June 2024, the ECB has reversed its tightening cycle, initiated two years earlier to combat rising prices, reducing the deposit rate from a record high of 4.0% to 2.0%, a level not considered detrimental to the economy.
If there are further changes, they will be delayed until after August, with several analysts predicting a final 25 basis point cut, leaving the deposit rate at 1.75% before the end of the year.
This expectation is shared by Generali Investments senior economist Martin Wolburg, who noted that the ECB should hold the headline rates but maintain an open policy stance.
Martin Wolburg also stated that the recent euro appreciation could have a disinflationary effect in a scenario where “growth is weak and surrounded by geopolitical and tariff-related risks.”
The Chief Investment Officer (CIO) of Public Markets at Allianz Global Investors (Allianz GI), Michael Krautzberger, also shared the expectation that the ECB will pause interest rate cuts in today’s meeting.
Krautzberger identified trade tensions between the United States and the EU as the biggest short-term risk to the euro economy but highlighted that survey data in the eurozone “has recovered from April lows due to tariffs, while inflation is again close to the ECB’s inflation target.”
