The ECB is now expected to deliver a final 25bp increase in September, taking the deposit rate to 2.50%, and then hold it steady through 2027. The previous view that policy would be eased in 2027, with the rate cut back to 2.00%, has been dropped.
Growth Backdrop and Policy Outlook
This revision is based on an assessment that the growth backdrop is more resilient than previously assumed, reducing the case for rate cuts next year.
Inflation and Risk Assessment
At the same time, underlying inflation is described as contained, which is consistent with limiting further tightening beyond one additional move. Risks to this outlook are viewed as balanced.
