European Central Bank pauses, but further easing still possible

Summary

• The European Central Bank (ECB), in a widely expected move, held its Deposit Rate steady at 2.00% at today's monetary policy announcement, marking its first pause in more than a year. The accompanying statement was neutral in tone and offered no forward guidance on future policy moves.

• Inflation is at the ECB’s 2% target, with incoming data broadly aligned with its outlook. Domestic price pressures are easing, and wage growth is slowing. The ECB noted that the economy remains resilient, partly due to past rate cuts, but flagged elevated uncertainty—particularly stemming from trade tensions.

• ECB's Lagarde reiterated the central bank's "data-dependent, meeting-by-meeting approach" and emphasized that the central bank is “not pre-committing to a particular rate path.” Post-meeting news reports also suggest a somewhat challenging path to further easing.

• That said, we continue to expect one final 25 bps rate cut to 1.75%, likely in September or December, as we expect a perceptible softening in Eurozone data in the months ahead. Slowing wage growth, softening fundamentals and trade-related risks support the case for further easing. However, the timing will depend on the cadence of that data and the outcome of EU-U.S. trade negotiations, which could materially impact the growth outlook.

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