ECB still “in a good place”

What happened?

Prior to the meeting no members of the ECB Governing Council gave any suggestion that their decision would differ from that predicted unanimously by economists and the market. Quite the opposite. ECB President Christine Lagarde recently said that the institution sees itself as "well positioned" to anchor inflation sustainably at 2%.

It was therefore to be expected in advance how the ECB’s statement would begin: "The Governing Council today decided to keep the three key ECB interest rates unchanged.“ They emphasised that the Governing Council’s assessment of the inflation outlook is broadly unchanged. The ECB continues to set its monetary policy from meeting to meeting, taking into account current data.

The new ECB staff projections present a picture of inflation similar to that delivered in June. They see headline inflation averaging 2.1% in 2025, 1.7% in 2026 and 1.9% in 2027. The forecasts for 2025 and 2026 were raised slightly, whereas they lowered the forecast for 2027. For core inflation, they expect an average of 2.4% in 2025, 1.9% in 2026 and 1.8% in 2027.

The economy is projected to grow by 1.2% in 2025, revised up from the 0.9% expected in June. The growth projection for 2026 is now slightly lower, at 1.0%, while the projection for 2027 is unchanged at 1.3%.

What does it mean for investors?

Of greater interest was the press conference held by ECB President Christine Lagarde, from which market participants hoped to gain clues about the future path of interest rates. First and foremost, her statement noted that the risks to growth now appear "more balanced“. This was a notable shift from her statement following the July meeting that risks are tilted "to the downside“.

In general, Lagarde placed greater emphasis on the resilience on growth and the potential for forward-looking improvement. Even though the inflation forecast for 2027 was lowered, Lagarde talked of increased confidence in domestic resilience as well as some decline in external uncertainty (compared to the meetings in June and July), leading to a more balanced growth outlook. When a question referred to the inflation forecast for 2026 and 2027 staying below the 2,0% target rate, she said that “minimal deviation from the inflation target will not necessarily justify an (interest rate) movement.

In response to a journalist’s question, she even went so far as to remark “The disinflationary process is over” and repeated that the ECB continues to be in a good place. Unless completely unexpected events drastically change the ECB's perspective, the probability of a key interest rate cut by the end of this year is likely to be low – the interest rate futures markets are pricing in a probability of only 20% via the OIS.