ECB interest rates: here’s Lagarde’s next moves

Now that the anxiety of the past few days, triggered by the countdown to the ECB meeting, has passed, the question circulating in trading rooms remains: will Eurozone interest rates really not be cut again? Do those two consecutive pauses in the rate-cutting cycle equivalent to a definitive halt to cuts?

European Central Bank President Christine Lagarde herself, during yesterday’s press conference, reiterated that she has no intention of making predictions about what will happen and, therefore, what she will do at the end of the next meetings, both the two scheduled for the final months of 2025, including the next one at the end of October in Florence, and the subsequent ones in 2026.

ECB rates: Lagarde constrained by macroeconomic data. Trump and France’s tariffs pose obstacles

For a change, Lagarde will remain hostage to the current data. Meanwhile, several economists and strategists, after digesting the Eurotower’s top official’s remarks and the new developments that emerged at yesterday’s ECB Day — primarily the publication of the staff’s new economic projections — have released their comments, in some cases making changes to previously formulated outlooks.

Yesterday, Thursday, September 11, 2025, the ECB confirmed the deposit rates, the main refinancing rate, and the rates on the marginal lending facility at 2%, 2.15%, and 2.40%, respectively.

The rates were thus paused for the second consecutive time, after the first halt announced at the last meeting last July 24.

Among analysts, some have declared the end of the rate-cutting cycle, while others still consider the possibility that, perhaps not immediately, the institution will return to cutting euro area borrowing costs.

There are also those who maintain that the next move will be a rate hike, due to the boost to GDP and potentially inflation that could be influenced by two expansionary fiscal policy measures, as Lagarde herself repeatedly reiterated: Germany’s fiscal bazooka and the increased defense spending decided by the European Union.

The return of monetary tightening, some have already predicted, could become apparent by the end of 2026.

But it’s not just the experts who have their say.

In the last few hours, statements from some members of the ECB Governing Council have also arrived. These are, admittedly, rather conflicting statements, which confirm that the European Central Bank still has no clear idea of what to do and how to proceed, navigating in, admittedly, decidedly uncertain waters, caught between the impact of Trump’s tariffs on global trade, and the economic uncertainty in France, and which is trembling, even after the appointment of new French Prime Minister Sébastien Lecornu by President Emmanuel Macron, facing new risks.

Interest rates, the ECB’s official position. What the various representatives are saying and what the markets are pricing in

The ECB’s official position on interest rates is as follows, which corresponds to the same old story Lagarde has been repeating for some time. The institution’s president stated:

"We are determined to ensure that inflation stabilizes at our medium-term objective of 2%. To define the appropriate monetary policy stance, we will follow a data-driven approach, with decisions being taken on a case-by-case basis at each meeting. In particular, our interest rate decisions will be based on an assessment of the inflation outlook and associated risks, given incoming economic and financial data, as well as the dynamics of underlying inflation and the strength of monetary policy transmission, without committing us to a particular rate path."

From what some Governing Council members have said in the last few hours, opinions within the ECB are however, quite divergent.

For example, Gediminas Šimkus, President of the Central Bank of Lithuania, while acknowledging that "inflation has stabilized at the target level (2%)," warned that "inflation risks are significantly high" and that "economic activity is recovering at a faster pace than previously observed," amid "good labor market conditions." These words, in theory, do not at all support hopes for further rate cuts.

Interviewed by BFM Business, the head of the Banque de France and member of the ECB Governing Council, François Villeroy de Galhau emphasized that, while there is no predetermined path, "another rate cut is entirely possible in the next meetings."

Madis Muller, Governor of the Bank of Estonia and also a member of the institution’s Governing Council, also had her say, stating that " rates are now appropriately set ," as they remain "a support for the economic recovery."

That said, following Lagarde’s assertions, markets have virtually eliminated the prospects of an imminent rate cut in the last two meetings of 2025, as they are now pricing in reductions of just 4 basis points by the end of the year and 14 basis points by the end of 2026.

For the Florence meeting, specifically, traders are betting on a third consecutive pause in the monetary easing cycle with a very high probability, equal to 95.64%, according to information collected by LSEG.

ECB rate forecasts, JPMorgan moves the date. The views of BNP, Goldman Sachs, Pimco, Generali Investments

What do the experts say instead? JPMorgan’s research division still expects a rate cut by the end of the year: no longer, however, at the end of the next Eurotower meeting in late October, but at the last meeting of the year in December. "We recognize the clear risk that the ECB has finished cutting (rates), but we also want to recognize that the inflation outlook still suggests monetary easing "

The position of BNP Paribas strategists, on the other hand, is more hawkish. In a note released on ECB Day, they wrote that "the ECB meeting in September strengthened our view, according to which (macro) data would have to disappoint to justify any further rate cuts."

The analysts continued, stating that “with the ECB already forecasting weak growth in the near term and weakening inflation, the threshold for further rate cuts appears high .”

Also notable was Martin Wolburg, senior economist, Generali Investments, who wrote in a note that "the rate-cutting cycle is over," explaining:

"With the key rate at 2.0%, monetary policy is positioned in the middle of the neutral range (1.75% - 2.25%) identified by ECB staff. Given today’s strong message (yesterday for those reading this), the ECB’s constructive macroeconomic outlook, and the less dovish comments from Council members in recent weeks, we do not expect further rate cuts in this cycle, unless downside risks materialize."

Konstantin Veit, Portfolio Manager at PIMCO, also leaned toward a no further rate cuts, writing that, while we agree with the market that further monetary easing is likely, in order to protect a projection in In line with the 2027 target, we believe there is a high probability that the rate cuts cycle has already concluded at the current policy rate of 2%.”

Veit clarified that, overall, we do not believe the ECB’s reaction function is geared toward marginal adjustments to monetary policy and, in our baseline scenario, we expect a prolonged period of inaction on policy rates .”

Simon Dangoor, Head of Fixed Income Macro Strategies at Goldman Sachs Asset Management, did not rule out a final rate cut:

"The ECB is in no rush to cut rates, preferring instead to wait for clearer signals regarding trade headwinds and lower-than-expected inflation. We expect a final cut in December, given the downside risks, although no easing can be ruled out. Short-term yields remain relatively anchored in this environment, while the impetus from German fiscal expansion and Dutch pension reforms could push yields higher at the long end of the curve. We therefore prefer carry trades and curve steepening strategies rather than direct exposure to duration."

All this, while markets are circulating rumors that Lagarde’s ECB is inclined to reconsider cutting rates again. at the last Governing Council meeting of 2025, scheduled for December 18th.

The debate about the arrival of a new rate cut, in short, is still ongoing. The the next potential rate cut, however, is expected to be more apparent in December than in November: this is because at the next meeting in Florence at the end of October, the institution will not yet have sufficient information to properly assess the health of the Eurozone economy.

Meanwhile, just today, the final reading of the August inflation data arrived from the German macroeconomic data, confirming the preliminary numbers: the CPI rose in the month at an annual rate of 2.2%. This level is above the ECB’s 2% target. It is no coincidence that in the area, and for quite some time now, there has been frequent discussion of an economy experiencing stagflation. But it’s true that many are instead highlighting the risk of disinflation: in short, everything and the opposite of everything.

Original article published on Money.it Italy 2025-09-12 12:08:06. Original title: Tassi BCE, quali saranno le prossime mosse di Lagarde