Europe | ECB settles at 2% with a more balanced risk outlook

Summary

The focus of Thursday’s ECB monetary policy meeting was not so much on the interest rate decision (already priced in by analysts and markets, who expected the deposit rate to be unchanged at 2%), as on the hints that Christine Lagarde could give regarding what the central bank will do next.

Key points

• Key points:
• In this sense, Lagarde was clear: the ECB is comfortable with interest rates where they are now. She insisted that the central bank ”continues to be in a good place".
• The tone was relatively hawkish. Lagarde also remarked that the risks to growth are now more balanced compared to June and proclaimed that “the disinflationary phase is over".
• As a result, the central bank has raised its 2025 GDP outlook to 1.2% (from 0.9% in June), largely on the back of unexpectedly positive changes in the figures for the first quarter, while downplaying the weaker tone of the second quarter. For 2026, growth has been lowered slightly to 1%, while for 2027 it remains at 1.3%.
• In terms of prices, inflation in the euro area remains very close to target. The ECB now forecasts 2.1% in 2025, 1.7% in 2026 and 1.9% in 2027, implying a slight upward revision this year and the next, following by a downward correction in 2027.
• The September meeting followed the script, cementing the idea that the rate cycle is over and that only substantial changes would justify further adjustments. The markets share this view and are currently assigning a probability of below 50% to further cuts in the coming months.

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