ECB interest rate decision preview: If this happens, it may trigger a big market trend!
2025-09-11 16:41:21
On Thursday (September 11), the European Central Bank will announce its September interest rate decision at 20:15 Beijing time tonight, followed by ECB President Lagarde holding a monetary policy press conference at 20:45.
The European Central Bank is likely to keep the three key interest rates unchanged in its interest rate decision tonight. The core support lies in the fact that the initial value of the harmonized CPI in August was 2.1%, slightly exceeding expectations, and the second quarter's seasonally adjusted annualized GDP of 1.5% was higher than forecast. Inflation met the target and the economy showed resilience.
The tone in July was to pause the previous aggressive rate-cutting cycle. Due to internal disagreements over the neutral interest rate, officials stated that further intervention was not necessary at this time, and market expectations for a September rate cut fell to 30%. However, this is not the end of the policy. If the US tariff conflict escalates in the fourth quarter, inflation continues to fall below 2%, or a sluggish manufacturing PMI leads to economic contraction, the ECB may initiate a 25 basis point rate cut in December.
What did the ECB do in the previous two interest rate decisions? This article chronologically sorts out the ECB's reactions and reasons to various data since the last two interest rate decisions.
On June 5, the European Central Bank announced a 25 basis point cut in its three key interest rates, including the refinancing rate to 2.15%, in line with market expectations. This was the ECB's fourth rate cut this year and the eighth since June 2024. Stimulated by the fiscal policies of major countries and continued accommodative monetary policies, major European stock markets have performed well.
On July 3, the European Central Bank released the minutes of its June meeting, which revealed that although the overall policy was still described as "in a good position", "falling below the inflation target" became the core discussion point.
President Christine Lagarde has publicly questioned the feasibility of a "neutral interest rate," but the technical disagreements among members in the minutes suggest that market participants cannot predict the path of interest rates based solely on the wording of the press conference. Some members believe that the fact that interest rates are close to or below the neutral level indicates that substantial easing is underway, especially given that bank credit surveys show a rebound in lending.
In its July 24th interest rate decision, the European Central Bank (ECB) kept its three key interest rates unchanged at 2.00% (deposit rate), 2.15% (refinancing rate), and 2.40% (marginal lending rate). At a press conference, ECB President Christine Lagarde left all options open. The ECB made no adjustments to its macroeconomic assessment, awaiting further clarity on US tariff policies, particularly in the semiconductor and automotive sectors.
Internal disagreements over the "neutral interest rate" further constrained easing, with some members believing that current rates are sufficient to stimulate credit (bank lending has rebounded). Second-quarter GDP growth was 0.4% on an annualized basis, down from 2.4% in the first quarter. However, Germany and France maintained resilience through a rebound in consumption (household spending grew 0.3%) and inventory adjustments.
Inflation rebounded to 2.0% in July, with core inflation stabilizing at 2.8%, confirming confidence in the medium-term inflation target. Traders' expectations for a September rate cut have fallen to around 30% from 50% in June, weakening market confidence in further easing. Despite this, another rate cut in September cannot be ruled out, but the threshold for a reduction has significantly increased.
Announced on August 4th, the Eurozone's Consumer Price Index (CPI) rose 2.0% year-on-year in July, unchanged from June and slightly above the expected 1.9%. Core inflation (excluding energy and food) remained stable at 2.8%. This data not only confirms the ECB's confidence in its medium-term inflation target but also provides a basis for delaying interest rate cuts.
The European Commission rarely paused its interest rate cut cycle at its July meeting, making it clear that "inflation is close to the target, although victory has not yet been declared." Officials such as Patasalides emphasized that "the eurozone economy is remarkably resilient" and believed that "inflation will stabilize around 2%."
According to data from Eurostat on August 12, the eurozone's economic growth rate in the second quarter was 0.4% year-on-year, a moderate growth rate.
This slowdown, compared with a 2.4% growth rate in the first quarter, suggests that the acceleration in exports that drove GDP growth in the first quarter (designed to circumvent tariffs announced by US President Donald Trump earlier this year) may have ended. In the short term, the eurozone economy may weaken further, with data from Germany's Federal Statistical Office (Destatis) showing that German factory orders fell for the second consecutive month in June, and automakers such as Volkswagen and Mercedes-Benz also lowering their outlooks.
Despite the recent slowdown in growth, the outlook remains relatively positive. Eurostat notes that European consumers are benefiting from the lowest unemployment rate in 25 years and stabilizing inflation. The euro's appreciation this year has also boosted purchasing power, putting downward pressure on import prices. The European Central Bank's (ECB) wage tracking indicator projects wage growth of around 3%, consistent with its long-term inflation target of 2% plus 1% productivity growth, suggesting no expected inflation increase. If goods originally destined for export from China to the US are diverted to the eurozone, the increased supply could even put downward pressure on prices.
The upward trend of the euro against the US dollar continues. The core logic lies in the intensified divergence in monetary policies between the European and American central banks: the expectation that the European Central Bank (ECB) will maintain interest rates unchanged at its next meeting has basically been finalized.
ECB Governing Council member Martins Kazaks said the ECB has entered a new phase of monetary policy in which officials can focus on monitoring the economy rather than actively intervening to change its course. With inflation at its 2% target and recent data not suggesting a clear shift in the euro zone's outlook since its June quarterly forecasts, further rate cuts are not necessary at this time.
On September 2nd, the Eurozone's harmonized CPI for August was released at 2.1%, slightly higher than the market forecast of 2.0. This slightly better-than-expected data indicated a rebound in Eurozone inflation. On September 5th, the Eurozone's second-quarter seasonally adjusted annualized GDP growth rate of 1.5% was slightly higher than the forecast of 1.4%. The risk of deflation and recession has slightly decreased, further supporting the decision to keep interest rates unchanged.
Overall, the ECB's September 11th decision will maintain its three key interest rates unchanged. The core rationale is that inflation has not continued to decline, economic growth remains resilient, and bank interest margin risks suppress further rate cuts. However, this decision is not the end of the road. If trade conflicts escalate or economic data deteriorate in the fourth quarter, the ECB may cut interest rates by 25 basis points in December. The extent of the cut will depend on two conditions: continued deterioration in inflation, below 2%, or continued economic contraction, with the manufacturing PMI consistently below expectations.
At the same time, traders can make contingency plans in case of unexpected developments based on the expectation that interest rates will remain unchanged. They need to be vigilant that interest rate cuts may significantly weaken the euro exchange rate.
The European Central Bank is likely to keep the three key interest rates unchanged in its interest rate decision tonight. The core support lies in the fact that the initial value of the harmonized CPI in August was 2.1%, slightly exceeding expectations, and the second quarter's seasonally adjusted annualized GDP of 1.5% was higher than forecast. Inflation met the target and the economy showed resilience.
The tone in July was to pause the previous aggressive rate-cutting cycle. Due to internal disagreements over the neutral interest rate, officials stated that further intervention was not necessary at this time, and market expectations for a September rate cut fell to 30%. However, this is not the end of the policy. If the US tariff conflict escalates in the fourth quarter, inflation continues to fall below 2%, or a sluggish manufacturing PMI leads to economic contraction, the ECB may initiate a 25 basis point rate cut in December.
What did the ECB do in the previous two interest rate decisions? This article chronologically sorts out the ECB's reactions and reasons to various data since the last two interest rate decisions.
The eighth interest rate cut in June was to ease deflationary pressure and weak growth.
On June 5, the European Central Bank announced a 25 basis point cut in its three key interest rates, including the refinancing rate to 2.15%, in line with market expectations. This was the ECB's fourth rate cut this year and the eighth since June 2024. Stimulated by the fiscal policies of major countries and continued accommodative monetary policies, major European stock markets have performed well.
The minutes of the June ECB meeting showed that deflation and bank interest rate spread risks are causing concerns
On July 3, the European Central Bank released the minutes of its June meeting, which revealed that although the overall policy was still described as "in a good position", "falling below the inflation target" became the core discussion point.
President Christine Lagarde has publicly questioned the feasibility of a "neutral interest rate," but the technical disagreements among members in the minutes suggest that market participants cannot predict the path of interest rates based solely on the wording of the press conference. Some members believe that the fact that interest rates are close to or below the neutral level indicates that substantial easing is underway, especially given that bank credit surveys show a rebound in lending.
The interest rate remained unchanged in July, pausing the interest rate cut for the first time and turning to wait-and-see
In its July 24th interest rate decision, the European Central Bank (ECB) kept its three key interest rates unchanged at 2.00% (deposit rate), 2.15% (refinancing rate), and 2.40% (marginal lending rate). At a press conference, ECB President Christine Lagarde left all options open. The ECB made no adjustments to its macroeconomic assessment, awaiting further clarity on US tariff policies, particularly in the semiconductor and automotive sectors.
Internal disagreements over the "neutral interest rate" further constrained easing, with some members believing that current rates are sufficient to stimulate credit (bank lending has rebounded). Second-quarter GDP growth was 0.4% on an annualized basis, down from 2.4% in the first quarter. However, Germany and France maintained resilience through a rebound in consumption (household spending grew 0.3%) and inventory adjustments.
Inflation rebounded to 2.0% in July, with core inflation stabilizing at 2.8%, confirming confidence in the medium-term inflation target. Traders' expectations for a September rate cut have fallen to around 30% from 50% in June, weakening market confidence in further easing. Despite this, another rate cut in September cannot be ruled out, but the threshold for a reduction has significantly increased.
July inflation hits target, weakening urgency for rate cuts
Announced on August 4th, the Eurozone's Consumer Price Index (CPI) rose 2.0% year-on-year in July, unchanged from June and slightly above the expected 1.9%. Core inflation (excluding energy and food) remained stable at 2.8%. This data not only confirms the ECB's confidence in its medium-term inflation target but also provides a basis for delaying interest rate cuts.
The European Commission rarely paused its interest rate cut cycle at its July meeting, making it clear that "inflation is close to the target, although victory has not yet been declared." Officials such as Patasalides emphasized that "the eurozone economy is remarkably resilient" and believed that "inflation will stabilize around 2%."
Economic growth slowed in the second quarter, but resilience remained
According to data from Eurostat on August 12, the eurozone's economic growth rate in the second quarter was 0.4% year-on-year, a moderate growth rate.
This slowdown, compared with a 2.4% growth rate in the first quarter, suggests that the acceleration in exports that drove GDP growth in the first quarter (designed to circumvent tariffs announced by US President Donald Trump earlier this year) may have ended. In the short term, the eurozone economy may weaken further, with data from Germany's Federal Statistical Office (Destatis) showing that German factory orders fell for the second consecutive month in June, and automakers such as Volkswagen and Mercedes-Benz also lowering their outlooks.
Despite the recent slowdown in growth, the outlook remains relatively positive. Eurostat notes that European consumers are benefiting from the lowest unemployment rate in 25 years and stabilizing inflation. The euro's appreciation this year has also boosted purchasing power, putting downward pressure on import prices. The European Central Bank's (ECB) wage tracking indicator projects wage growth of around 3%, consistent with its long-term inflation target of 2% plus 1% productivity growth, suggesting no expected inflation increase. If goods originally destined for export from China to the US are diverted to the eurozone, the increased supply could even put downward pressure on prices.
The continued strength of the euro confirms the divergence of European and American central bank policies
The upward trend of the euro against the US dollar continues. The core logic lies in the intensified divergence in monetary policies between the European and American central banks: the expectation that the European Central Bank (ECB) will maintain interest rates unchanged at its next meeting has basically been finalized.
ECB Governing Council member Martins Kazaks said the ECB has entered a new phase of monetary policy in which officials can focus on monitoring the economy rather than actively intervening to change its course. With inflation at its 2% target and recent data not suggesting a clear shift in the euro zone's outlook since its June quarterly forecasts, further rate cuts are not necessary at this time.
Summary and Policy Outlook
On September 2nd, the Eurozone's harmonized CPI for August was released at 2.1%, slightly higher than the market forecast of 2.0. This slightly better-than-expected data indicated a rebound in Eurozone inflation. On September 5th, the Eurozone's second-quarter seasonally adjusted annualized GDP growth rate of 1.5% was slightly higher than the forecast of 1.4%. The risk of deflation and recession has slightly decreased, further supporting the decision to keep interest rates unchanged.
Overall, the ECB's September 11th decision will maintain its three key interest rates unchanged. The core rationale is that inflation has not continued to decline, economic growth remains resilient, and bank interest margin risks suppress further rate cuts. However, this decision is not the end of the road. If trade conflicts escalate or economic data deteriorate in the fourth quarter, the ECB may cut interest rates by 25 basis points in December. The extent of the cut will depend on two conditions: continued deterioration in inflation, below 2%, or continued economic contraction, with the manufacturing PMI consistently below expectations.
At the same time, traders can make contingency plans in case of unexpected developments based on the expectation that interest rates will remain unchanged. They need to be vigilant that interest rate cuts may significantly weaken the euro exchange rate.
- Risk Warning and Disclaimer
- The market involves risk, and trading may not be suitable for all investors. This article is for reference only and does not constitute personal investment advice, nor does it take into account certain users’ specific investment objectives, financial situation, or other needs. Any investment decisions made based on this information are at your own risk.
