The European Central Bank is expected to hold rates steady at the upcoming meeting, with no further cuts anticipated in 2025 and only a slight chance of a decrease in 2026. This comes as inflation remains on target but growth is sluggish. Some analysts warn of upside inflation risks, potentially leading to a rate hike in 2026.

Money markets are pricing in a stable rate of 1.852% by the end of 2026, indicating no rate cut expectations. Eurozone inflation is at 2.1% in October, aligning with the ECB’s 2% target. Analysts believe the ECB will maintain its current rates due to contained inflation and weaker growth projections for 2026.

While the ECB’s focus is on price stability, some economists predict further rate cuts of 50 basis points over the next year if inflation undershoots and growth remains weak. The upcoming December meeting will provide new forecasts on inflation and growth, potentially influencing the ECB’s decision on rate adjustments.

There is a debate among analysts on whether the ECB’s next move could be a rate hike, given the shifting risks of upside inflation. Some experts see the potential for a rate increase in 2026 due to fiscal stimulus and structural labor market constraints. The December staff projections will play a crucial role in determining the ECB’s next steps.

The ECB’s base case is for inflation to undershoot in 2026, with core inflation expected to decrease. However, there are upside risks to inflation, especially as the economy recovers and governments increase spending. Analysts are closely watching for the first 2028 inflation estimate to gauge future policy decisions.

Eurozone growth is expected to be modest in 2026, with a slight uptick due to German fiscal stimulus. The transmission of ECB rate cuts takes time to impact growth, with analysts cautiously optimistic about the outlook. Bond markets reflect uncertainty, with yields elevated and shorter-term bonds potentially volatile if the ECB’s stance changes.

The last ECB meeting in 2025 is scheduled for December 18. Analysts are closely monitoring inflation and growth forecasts, as well as the potential for rate adjustments in 2026 based on economic conditions.

Read more at Morningstar: Is the ECB Done Cutting Interest Rates?