The ECB kept its deposit rate at 2% with no forward guidance, amid steady inflation near 2%. Growth forecasts for 2025 were revised higher, but projections show little change to the inflation outlook. Market reaction was muted, as investors await US inflation data. Fed interest rate cut expectations rose due to weak US jobs report.

The ECB paused its rate-cutting cycle, holding the deposit facility rate at 2%. Inflation in the eurozone remains around the 2% target, with core inflation at 2.3% year over year. ECB staff projections show inflation similar to June’s outlook. The Governing Council gave no indication of future rate moves.

Views on potential future ECB rate cuts in 2025 vary among investors. Some expect one more cut in December, while others believe the ECB has finished its cutting cycle. The ECB’s decision not to provide forward guidance leaves room for speculation on future rate moves based on inflation and economic conditions.

ECB staff revised economic forecasts, with higher growth projections for 2025 but lower core inflation forecasts for 2027. The inflation outlook remains largely unchanged, with near-term inflation forecasts slightly raised. The pause in rate cuts is expected to continue, with implications for equity and bond markets.

Rate cuts impact investors differently, with equities rising on anticipated cuts, bond prices increasing, and savings account rates falling. Borrowers benefit from cheaper debt, while cash savers see lower returns. The decision to maintain rates at 2% is seen as supportive of businesses and equity markets in Europe.

Read more at Morningstar: ECB Holds Interest Rates Steady, Raises 2025 Growth Outlook