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The ECB kept rates unchanged but signalled that another hike in December is increasingly likely. Lagarde played down tensions in French bond markets, while her early departure also drew attention. Beyond December, the outlook will largely depend on how the energy shock evolves.

The ECB responded to the worsening inflation outlook with a 25bp rate hike, but kept all options open for the months ahead. The key message was that the shock can no longer be viewed as temporary, although there is still no clear evidence of second-round effects.

The ECB kept rates unchanged and appeared comfortable with the current level. Lagarde noted that the euro’s appreciation and the recent dip in inflation were no surprise, shifting the focus toward economic resilience and longer-term issues.

Despite slightly higher growth and inflation forecasts, Lagarde struck a cautious tone, stressing high uncertainty and avoiding forward guidance. The ECB is watching services inflation and wages and starting to assess AI’s impact. Barring surprises, a prolonged pause with the deposit rate at 2% through 2027 looks likely.

The ECB adopted a relatively dovish stance today while implementing the widely expected rate cut, signaling the possibility of further reductions without committing to a specific terminal level. This approach aligns with the continued progress in disinflation and the subdued momentum of the Eurozone economy.

No major news has come out today as the rate cut was universally expected and the ECB does not want to pre-commit to the path of future cuts. We still expect two further cuts this year, in September and December, if there are no major surprises in the outlook for inflation during the rest of the year.

Our forecast still leans towards a further rate hike in September (reaching a terminal rate of 4% for the deposit rate); however, recent data weaknesses and ECB communications before and during the meeting have increased the likelihood of a potential pause and the possibility of no further hikes.