The European Central Bank (ECB) has decided to pause its streak of interest rate hikes, marking the first time in over a year that rates have remained unchanged. This decision comes amidst ongoing uncertainty surrounding trade disputes with the United States. ECB President Christine Lagarde announced the bank is now in a “wait-and-see” mode, carefully monitoring how risks evolve in the coming months.
The deposit rate remains at 2 per cent, aligning with the expectations of most analysts surveyed by Bloomberg. The ECB refrained from offering any forward guidance on future monetary policy steps, citing a lack of clarity on the ultimate level of tariffs. Despite the resilient economy, the ECB noted that the environment remains “exceptionally uncertain, especially because of trade disputes.” Other challenges include a strong euro and increased public spending on infrastructure and defence.
Lagarde told reporters in Frankfurt that with inflation currently at 2 per cent, the ECB is “well positioned to wait and see.” Investors are closely watching to see if the ECB will implement further reductions in borrowing costs, adding to the eight reductions since June 2024, or if the current monetary easing cycle has concluded.
Following the announcement, traders adjusted their bets on a final quarter-point rate cut this year, pricing in a 70 per cent probability compared to approximately 90 per cent previously. Economists surveyed before the decision continue to predict a final quarter-point move in September.