After cutting its key interest rates by 200 basis points in just over a year, the European Central Bank (ECB) is unsurprisingly expected to maintain monetary policy unchanged at its July meeting, marking a pause—whether temporary or not—in its easing cycle.
Our main expectations :
- Key interest rates: The Governing Council is expected to keep the deposit rate—the main reference rate—steady at 2.0%, a level considered neutral. The ECB is likely to emphasize that this rate remains appropriate in light of the latest economic data and the gradual easing of inflation toward its target.
- Communication: Building on the minutes from the previous meeting, the ECB might begin adjusting its strategy by moving away from strictly data dependent approach. With the 2% inflation target now reached, the institution could shift toward a more forward-looking risk assessment approach. Decisions would continue to be made on a meeting-by-meeting basis, without prior commitment regarding the future path of rates.
- Economy: While growth risks remain tilted to the downside, mainly due to global trade tensions and related uncertainties, Christine Lagarde is expected to highlight several factors that continue to support a gradual medium-term recovery: a strong labor market, rising real wages, easing financing conditions and unprecedented fiscal support in Germany. Regarding inflation, she is likely to stress that risks are balanced and that a sustained undershoot of the target seems unlikely. Furthermore, the ECB President is expected to downplay the impact of the euro’s appreciation, reaffirming that the ECB does not target the exchange rate.
In summary
The ECB is expected to pause in July as it awaits the release of its updated macroeconomic projections in September. At the press conference, Christine Lagarde is expected to stress the importance of maintaining a cautious and flexible monetary policy based on continuous risk assessment, while avoiding giving explicit guidance on future rate moves.
Overall, no major surprises are expected, and the market impact should remain very limited.