The European Central Bank (ECB) is expected to keep interest rates unchanged for the third consecutive time this week, benefiting from a rare period of low inflation and stable economic growth, despite ongoing pressure from shifts in global trade dynamics.
The Bank, which cut rates by two percentage points over the past year through June, appears to have adopted a cautious wait and see approach, viewing inflation as close to its target a balance that major central banks such as the U.S. Federal Reserve, Bank of England, and Bank of Japan have yet to achieve.
Although all economists surveyed by Reuters expect no rate change in the October meeting, Christine Lagarde may keep the door open for an additional cut, particularly as volatile U.S. trade policies continue to weigh on the European economy, increasing the likelihood of inflation slowing more than desired.
Lagarde has emphasized that the ECB remains “in a good place,” stressing that future decisions will be data-driven, and that the Bank will avoid over adjusting its policy as long as deviations from the inflation target remain limited.
Recent data have aligned with the ECB’s earlier projections: economic activity continues to grow modestly, and German business confidence has improved as trade uncertainty recedes. However, the European industrial sector still faces weak demand, falling exports to the United States, and an influx of Chinese goods into European markets.
According to Bank of America, tighter financial conditions will make it difficult for the ECB to ignore the risk of inflation undershooting in upcoming forecasts. Meanwhile, Philip Lane, the ECB’s chief economist, has suggested that this scenario could justify a slight additional rate cut before mid 2026.
On the other hand, most analysts and policymakers still expect interest rates to remain stable, supported by fading uncertainty, rising fiscal spending in Germany, and strong household savings across Europe.
Forecasts indicate that inflation may dip temporarily next year before gradually returning to target levels, with the real test of ECB policy expected in December, when the Bank releases its updated economic projections through 2028.
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