The European Central Bank (ECB) is expected to keep interest rates unchanged on Thursday, maintaining its cautious stance as inflation aligns with the 2% target. After halving its key rate to 2% by June, the ECB has stayed on hold, citing stability in the 20-country eurozone economy. Policymakers remain watchful of external risks such as U.S. tariffs, rising German government spending, and political turbulence in France.
President Christine Lagarde is likely to remain intentionally vague about the outlook for monetary policy, but analysts expect her to leave the door open for a potential final rate cut. Inflation is projected to dip below target next year, fueling speculation of one more “insurance” cut around early 2025. HSBC notes that persistent risks of inflation undershooting suggest the ECB maintains a dovish bias.
Markets currently price in a 50-60% chance of a rate cut by spring, while the U.S. Federal Reserve is expected to deliver several cuts next year. For the ECB, any future action will likely be minimal, signaling that most of the monetary easing cycle is complete.
The key debate remains between hawks, who argue the eurozone has shown resilience with strong consumption, rebounding industry, and German fiscal support, and doves, who warn tariffs and weak growth could weigh on consumption and prices. BNP Paribas forecasts resilience as trade uncertainty fades, while Societe Generale suggests cuts may be needed if inflation expectations fall further.
Meanwhile, political turmoil in France and rising bond yields add pressure but are not yet seen as warranting ECB intervention. With growth still fragile and inflation risks tilted downward, the central bank faces a delicate balance between holding steady and acting to preserve price stability.