An interest rate cut by the European Central Bank (ECB) at Thursday’s monetary policy meeting is ruled out. Some members of the government councillike Peter Kazimir, have publicly declared that “certainly not in December”. “THE … Core inflation is a little higher and wage moderation a little slower… We need to be patient and we need more clarity,” he explained of the impasse countries find themselves in.
And to this we add that, since the last meeting of those responsible for the ECB In October, new elements came to support Christine Lagarde’s mantra, convinced that monetary policy remains “in a good position”. With the Eurozone economy showing signs of resilience and inflation on track to meet its medium-term target, rates are expected to remain at 2% following today’s Eurotower meeting.
This therefore excludes a further variation in rates between now and fourth time in a rowthe question for markets is when the ECB will play this trick and in which direction. Although recent data shows the euro zone economy grew by 0.3% in the third quarter, much faster than the ECB forecast in September, the economic outlook remains uncertain. They are surrounded by both threats, which could require monetary easing, and risks, which could prompt some tightening.
To answer this question, the first forecasts for 2028 will surely play a role. If inflation remains around 2%, this would reinforce the thesis that the problem is only temporary. and analysts like Adriá Morrón Salmerón, from Caixabank’s International Economies and Markets Department, emphasize that “as long as such a constellation of risks persists, the ECB will not hypercalibrate its monetary policy based on small variations in the data.”
percent
This is the level at which prices have been set since June
The projections for 2028 are important because of the EU’s new emissions trading system, which could push inflation further below the target. “Forecasts will provide more aggressive signals”says Irene Lauro, economist at Schroders. And with this data on the table, the ECB president is expected to give some guidance, after the governing council meeting, on what steps the European issuer can take in the coming year.
Traders believe the ECB will keep rates stable, but estimate there is a 30% chance it will raise them by the end of 2026. Isabelle SchnabelGerman and member of the executive committee, fueled the hope that the next step will be upwards. Much depends on the extent to which Germany’s fiscal stimulus will boost growth, the continued appreciation of the euro – which is up 13% this year – and the fall in energy prices. Cheap Chinese products could also influence inflation. “German fiscal stimulus and EU-level defense spending will be almost entirely offset by the impact of higher U.S. tariffs,” said Shaan Raithatha, senior economist at Vanguard.
War in Ukraine
The ECB, on the other hand, needs time to see the outcome of the war in Ukraine. If a peace deal is ultimately reached, it could focus on supporting European growth and lowering energy prices. Germany’s plan to use frozen Russian assets to fund an arms loan to Ukraine is also a source of concern for the ECB, as it could harm the euro’s position as policymakers seek to strengthen its status as a reserve currency. But for Lagarde, this is a “forced” tool, both legally and financially, and she may or may not soften this stance at today’s press conference.
The questions will also likely focus on the two-year process launched by the ECB to replace the majority of its board, starting with Vice President Luis de Guindos early next year. Several smaller countries have entered the race, suggesting that a smaller nation, perhaps for the first time from the East, might have a chance.
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