Economists See Another ECB Rate Cut in 2025 Despite Cautious Tone
Analysts polled by Bloomberg still predict a September reduction, even as some policymakers call for a pause to assess inflation.
Economists largely expect the European Central Bank (ECB) to deliver at least one more interest rate cut in 2025, even as policymakers signal caution and a growing number of analysts argue that the era of rate reductions may be drawing to a close. The debate reflects a broader tension between persistent inflation concerns and uneven economic momentum across the eurozone.
Market Expectations and Policymaker Commentary
A Bloomberg survey conducted after the ECB’s June rate cut showed that many economists were still forecasting a further quarter-point reduction later in the year — a move that would bring the ECB’s deposit rate down toward levels around 1.75% as speculated by market watchers.
ECB President Christine Lagarde has repeatedly emphasized that the bank is well positioned to manage coming uncertainties, suggesting a continued data-dependent approach to monetary policy rather than a predetermined path of cuts or hikes. According to materials prepared by ECB staff, headline inflation is forecast to moderate in 2026, strengthening the case for cautious easing.
Inflation and Growth Dynamics
Recent projections from ECB economists show inflation trending toward the bank’s medium-term target but with persistent uncertainties. Staff projections published in mid-2025 indicated headline inflation averaging around 2.1% in 2025 and then easing toward about 1.9% in 2026, a slowdown partly driven by declining energy costs and a stronger euro.
The eurozone economy has shown resilience, with moderate GDP growth and labor markets that remain robust despite global trade uncertainties. These factors have led some policymakers and market participants to argue for a pause in easing, citing the risk of tightening financial conditions prematurely if cuts go too far.
Polling Signals Shift to Caution
Despite earlier expectations for additional cuts, more recent surveys point to a shift in sentiment. A Reuters poll in late 2025 found a majority of economists expecting the ECB to hold rates steady at 2.00% through at least 2026, reflecting confidence that inflation is close to the target and that the economic outlook is steady enough to forgo further easing.
According to that poll, most respondents saw limited room for further cuts, with only a small fraction anticipating additional reductions beyond those already implemented between June 2024 and mid-2025.
ECB’s Data-Driven Policy Stance
The ECB has maintained a “data-driven” stance, meaning officials will base decisions on incoming inflation, growth and labor market data rather than making forward commitments. Minutes from recent Governing Council meetings emphasize that the bank is prepared to adjust all instruments within its mandate to ensure inflation stabilizes around the 2% medium-term target.Inflation excluding volatile items such as energy and food is also projected to slow gradually, providing some headroom for monetary easing while still keeping price stability within reach.
Broader Financial Market Context
Financial markets have responded to this mix of optimism and caution by pricing in a modest likelihood of additional cuts, but not without reflecting uncertainty about the timing and extent of policy changes. While futures markets early in the year priced in potential easing, more recent trading suggests that cuts may be limited or even deferred if economic data remain firmer than expected.
Some analysts argue that any further rate reduction could provide a temporary boost to borrowing and growth, while others caution it might unduly risk loosening financial conditions at a time when core inflation measures remain sticky. The ECB’s multi-tier inflation forecast and steady growth projections underscore the complexity of balancing these competing forces.
What Comes Next
Looking ahead to 2026, inflation expectations and economic growth forecasts will remain central to policy decisions. With inflation projected to hover near target levels and economic growth seen as moderate, the ECB is likely to proceed with caution, using each policy meeting to reassess conditions rather than signal a broad new easing cycle.
For markets and businesses, the key takeaway is that monetary policy in the eurozone remains adaptive and contingent on unfolding economic realities — a framework that reflects both the progress made in price stability and the uncertainties that lie ahead.
