The ECB on Hold: Between Growth Risks and Inflation Concerns

Will the European Central Bank (ECB) cut interest rates again on 11 September? Jörg Held, Head of Portfolio Management at ETHENEA Independent Investors S.A., believes the ECB will take a wait-and-see approach. This way, the ECB keeps all options open to react to changing data:

“Most likely, the ECB will leave the key interest rate at two percent. After eight rate moves within the past year, the central bank is signalling a pause in order to carefully assess the impact of its measures. In particular, risks stemming from trade disputes and geopolitical tensions should be evaluated cautiously. The market currently prices in a September rate cut at less than one percent probability – a clear signal of wait-and-see mode.”

Disagreements also support a rate pause

Inflation is hovering close to the two-percent target, and the eurozone economy is showing unexpected resilience. This allows the ECB to pursue a “wait-and-watch” strategy and carefully analyse key data such as wage growth, industrial production, and services-sector inflation.

Nevertheless, risks remain: the threat of U.S. tariffs on goods from the European Union still hangs over the recovery of the manufacturing sector like a sword of Damocles. However, there is no need for the ECB to act immediately in September – unless conditions deteriorate rapidly. Added to this is an internal split among ECB policymakers: some fear the risk of recession and argue for further easing, while others focus on persistent inflationary pressures. These disagreements make decision-making even more difficult.

Uncertainty remains – the central bank steers by the data

The phase of rapid rate cuts, which began in mid-2024, is likely over for now. The ECB’s data-dependent stance remains the decisive factor: for the moment, it is assessing the effects of its previous measures. Its communication aims to preserve maximum flexibility. The ECB is keeping all options open in order to respond quickly, if necessary, to changing economic dynamics or shifting inflation expectations.”