ECB could wait until October before next rate cut

The ECB slashed rates by another 25 basis points on Thursday in a near unanimous vote (only one member dissented). An eighth consecutive interest rate cut had been universally expected by market participants and was, indeed, fully priced in prior to Thursday’s meeting.

The staff HICP forecasts were lowered, with the bank now expecting to hit its 2% inflation target later this year, before undershooting it in 2026, in part we think due to the rally in the euro and drop in global commodity prices since Liberation Day.

Yet, the ECB appears in no rush to continue easing policy as it awaits greater clarity on the economic impact of US tariffs.

President Lagarde even hinted that the end of the cutting cycle was nigh, and that policy was "in a good place", a carefully selected turn of phrase that we think effectively guarantees a pause in July.

We suspect that the council will give itself most, if not all, of the summer to take stock and see how the tariff saga plays out, before deciding on its next steps. Another cut in September is far from out of the question, but we see an increased risk that the ECB waits until October before pulling the trigger again.

At any rate, we see just one more cut before the year is out, which could well be the last in the current cycle.