The European Central Bank will keep euro-zone borrowing costs at 2% through 2027, according to a Bloomberg survey of economists.
The prediction includes a hold in the deposit rate at next week’s monetary-policy meeting. Further action beyond that isn’t totally excluded, however: A third of respondents forecasts at least one more cut to add to the eight to date, while 17% sees one or more hikes by the end of next year.
December’s decision, when new projections including 2028 for the first time, is seen as pivotal.
Officials led by President Christine Lagarde appear unlikely to shift interest rates in the near future, saying they’re content with the pace of consumer-price rises and Europe’s resilient economy. They describe policy as being in a “good place” to react flexibly to fresh challenges.
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There’s no shortage of those. Europe is caught in the middle of renewed US-China trade tensions — this time over semiconductors and rare earths, while credit downgrades are further complicating France’s fiscal bind and doubts are emerging over the potency of Germany’s plans for sweeping infrastructure and defense investments.
At the same time, a potential delay in the continent’s new emissions-trading system risks weighing on inflation in the coming years, and frothy asset valuations are fueling concern over a potential market crash.
“We don’t expect any further rate reductions this year, but the ECB will keep its options open,” said Dennis Shen, an economist at Scope who also cautions about a meaningful appreciation of the euro beyond $1.20 and additional cuts by the Federal Reserve. “The risk late this year or next year is for further easing rather than tightening.”
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A weighty argument backing another decrease would come if December’s outlook signals a big undershoot of the 2% target in 2028. A reading of 1.6% is seen as the tipping point that could another reduction in borrowing costs.
Near-term dangers to economic growth and inflation are seen as broadly balanced, while uncertainty further ahead remains high. Even so, more respondents worry about upside than downside risks to prices, which rose 2.2% in September — the fastest in five months.
“Inflation remains close to the target, and while some growth indicators have wobbled in recent months, nothing yet warrants a change in the monetary-policy stance,” said Nerijus Maciulis, Swedbank’s chief economist. “Lagarde may well repeat her main message from the September meeting — we are in a ‘good place.’”
Lagarde will next offer her views on the current situation on 30 October in Florence, Italy — the latest venue for the policy gathering the ECB stages outside its Frankfurt home each year.
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Even if she and her colleagues were to cut again, analysts reckon doing so would have only a limited impact on demand. Just over 60% say growth is held back equally by cyclical and structural forces. Most of the rest assign more blame for the bloc’s sluggishness to the latter.
What Bloomberg Economics says…
“The ECB is standing by its Goldilocks scenario whereby the short-lived weakness created by the rise in US tariffs will soon be offset by fiscal stimulus in Germany, allowing the Governing Council to keep rates on hold. A lot has to go right for that view to materialize – and we have its doubts that it will.”
David Powell, senior euro-area economist
Supply-chain snarls such as those threatening production in Europe’s car industry are just one obstacle. They intensified after the Dutch government, under pressure from Washington, took control of Chinese-owned chipmaker Nexperia — prompting Beijing to respond with export restrictions.
Political challenges are another drag. President Emmanuel Macron is clinging to power after the collapse of yet another French government, while public opinion in Germany is turning against Chancellor Friedrich Merz.
Pia Fromlet and Marcus Widen, economists at SEB, predict interest rates will remain unchanged through 2027, though they ask “why not cut” if inflation slows further while growth looks shaky.
