From Morningstar: 2025-06-27 10:23:00

The ECB is nearing the end of its rate-cutting cycle, with one or two cuts expected this year. Inflation is near target, but geopolitical uncertainty and US trade policy complicate the outlook. Markets expect a September cut, with rates possibly bottoming out. Investors await ECB decisions based on inflation and economic conditions.

The recent ECB rate cut marked the eighth since the easing cycle began, with rates halved to 2%. Eurozone inflation is near target, prompting speculation that the ECB may be close to its final rate. Analysts believe the ECB could cut rates further, but uncertainty remains due to geopolitical factors and inflation expectations.

Morningstar’s chief European markets strategist believes the ECB may have found the equilibrium level for interest rates, with inflation near the target. The ECB’s fast and aggressive rate cuts over the past year contrast with other major central banks. Markets anticipate one more rate cut by year-end, with uncertainty around timing and the overall impact on the economy.

The ECB’s rate-cutting cycle faces uncertainty due to geopolitical and trade-related risks. Markets expect one more cut by the end of 2025, but whether it will happen in July or September remains uncertain. Recent ECB communication emphasizes flexibility and caution in monetary policy decisions based on evolving economic conditions and inflation outlook.

The ECB’s staff forecasts for June 2025 show inflation near target and stable growth projections. Geopolitical tensions and the Iran-Israel conflict add volatility to the inflation outlook. Rising energy prices impact inflation and growth, posing challenges for the ECB’s expected disinflation path. Interest rate cuts affect investors differently, with equity markets rising and bond yields decreasing.

Remaining ECB meetings in 2025 are scheduled for July 24, September 11, October 30, and December 18. Investors closely watch the ECB’s decisions on interest rates and monetary policy, considering the impact on financial markets and the economy. Geopolitical uncertainties and trade tensions add complexity to the ECB’s decision-making process.



Read more at Morningstar: Will the ECB Cut Interest Rates Again in 2025?