European Central Bank officials (ECB) will wait until December to proceed to the next reduction interest ratewhich will probably be the last of the cycle, according to a Bloomberg survey.
Compared to a July survey, economists have postponed expectations for a new reduction in borrowing costs by three months. With the deposit rate then at 1.75%, they estimate that it will remain at this level for nine to ten months before increasing demand for them to reverse their course. Waiting until the final decision of 2025 will give the ECB’s policy makers to luxury to have more time to evaluate the impact of the trade disorder caused by US President Donald Trump.
By December, policy makers will have seen the efficiency of the economy in the third trimester, offering a clearer picture of underlying dynamics following the disturbances caused by efforts to prevent US duties earlier in the year.
The new forecasts will offer them a first picture of growth and inflation trends in 2028.
Their global counterparts also show signs that it will take some time to decide their next move, with the US Federal Bank (FED) remaining unchanged so far this year and the Bank of England Governor (BOE) recognizing them last week.
The ECB has maintained borrowing costs unchanged last month, and policy makers who have spoken since then argued that, at least for the time being, there is no much need for further reductions. Investors have reduced their bets for September in response, and see only a chance of just over 50% for a quarter of the spot at the end of the year.
“If the data show weakness as a result of a global change in trade dynamics, then the ECB is likely to make another reduction to protect the economy and offset the inflation below the target – but not before,” said Julie Ioffe and James Rossiter, TD Securities economists. If policy makers do not take advantage of the opportunity to make a new reduction in December, financial markets may conclude that the ECB has completed interest rates.
A separate research before the July meeting showed that half of those respondents believe that officials can sit in three meetings – in July, September and October – before traders assume that the borrowing costs are at its bottom.