In June, the European Central Bank (ECB) cut interest rates for the eighth time in a year. However, ECB officials signal a pause in further monetary easing as EU inflation has reached the target level of 2% and uncertainty about US tariff policy persists.
Policymakers note the cloudy outlook for the global trade. They believe elevated uncertainty is likely to prevail for some time and could intensify. Besides, the majority of officials do not expect the clarity on US trade talks to emerge by the next central bank’s meeting on July 24.
Investors see one more reduction in the ECB’s deposit rate later this year, while projecting borrowing costs to start rising in late 2026.
Meanwhile, some ECB officials warn of the risk of a significant slowdown in inflation. Experts believe the EU consumer price index will drop below the bank’s target in late 2025 and will remain under 2% for 18 months due to strengthening of the euro, low energy costs, and imports of cheap goods from China.