The European Central Bank (ECB) is now more confident in maintaining its 2% policy rate as a terminal level, with the view that the rate is sufficient to control inflation and economic uncertainty. Deutsche Bank supports this view and said that the market is now less expecting additional rate cuts after the September meeting.
The ECB's inflation forecast for 2027 was slightly lowered to 1.9% (headline) and 1.8% (core). However, President Christine Lagarde stressed that these deviations are small and do not affect the policy direction.
The economic growth forecast was also updated, with an increase to 1.2% for 2025, a slight decrease to 1.0% in 2026, and 1.3% unchanged for 2027. Lagarde highlighted signs of positive momentum from the labor market, the economic outlook, as well as the impact of rate cuts and fiscal easing.
While Deutsche Bank expects the 2% rate to be maintained, it does not rule out the possibility of policy easing in the next 6-9 months if inflation expectations slip, especially ahead of the low inflation forecast in early 2026.
