“It is practically certain that the ECB [European Central Bank] will keep interest rates unchanged, 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 probability close to 100%,” states BPI Research in anticipation of the July 24 meeting.
According to BPI Research, the pause is aligned with the new monetary policy strategy presented by the ECB at the beginning of the month, recognizing the existence of a structurally more uncertain and volatile environment, and advocating the need for a flexible capacity to act.
Should there be further changes, they will be deferred until after the summer, with several analysts predicting one final 25 basis points cut to lower the deposit rate to 1.75% before the year ends.
BPI Research considers a reduction after the expected pause to be “preventive and in response to high geopolitical uncertainty and downside risks to economic activity.”
This expectation is shared by Martin Wolburg, senior economist at Generali Investments, who noted that the ECB is likely to hold interest rates, “but keep an open policy stance.”
The analyst added that updated projections in September might involve a new 25 basis points cut to 1.75%, only if the risks of a slowdown in activity materialize.
Wolburg also mentioned that the recent appreciation of the euro could have a disinflationary effect, in a scenario where “growth is weak and surrounded by geopolitical and tariff-related risks.”
Michael Krautzberger, Chief Investment Officer (CIO) of Public Markets at Allianz Global Investors (Allianz GI), also expects the ECB to pause interest rate cuts in the July 24 meeting.
Krautzberger also regarded the trade tensions between the United States and the EU as the greatest short-term risk to the euro economy but emphasized that survey data in the eurozone “have recovered from lows in April, driven by tariffs, while inflation is again close to the ECB’s inflation target.”
At the last monetary policy meeting on June 4 and 5 in Frankfurt, the European Central Bank (ECB) lowered interest rates by 0.25 basis points, bringing the main policy rate down to 2%.
