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2025-10-30 16:05:09
[ECB May Keep Interest Rates Unchanged to Address Trade Uncertainty] ⑴ The European Central Bank (ECB) may decide to keep interest rates unchanged for the third consecutive time at its meeting on Thursday, despite facing turbulence caused by changes in trade relations. The bank remains in a rare favorable period of low inflation and stable growth. ⑵ The ECB cut interest rates by a total of two percentage points in the year ending in June, and has remained on hold since. ⑶ Given that inflation has reached its target level, the central bank has made it clear that it is in no hurry to adjust policy, an ideal situation that the Federal Reserve, the Bank of England, and the Bank of Japan have not achieved. ⑷ Although all economists surveyed expect interest rates to remain unchanged this month, ECB President Lagarde is unlikely to completely rule out the possibility of further easing. ⑸ The changing US tariff regime has not yet fully impacted the economy, uncertainty persists, and the risk of excessively low inflation is rising. ⑹ Lagarde may maintain her "well-positioned" stance, emphasizing that she will rely on data for decision-making and can tolerate small deviations from the inflation target. ⑺ Recent data show accelerating business activity, improved sentiment in Germany, and increased business optimism, partly due to the dissipation of tariff concerns. ⑻ However, continued weakness in industry and a sharp decline in exports to the US have balanced the optimism. (9) Given the ongoing impact of tariffs, maintaining a balanced outlook is a key issue. (10) Bank of America points out that financial conditions have tightened significantly, and the European Central Bank will find it difficult to avoid reflecting a larger and more persistent downside risk to inflation in its December forecasts. (11) A stronger euro has also dampened inflation, but the exchange rate has recently stabilized, and Fed Chairman Powell's hawkish statements may limit its further appreciation. (12) Chief Economist Lane's recent view that policy rates should be "slightly lower" is consistent with market pricing, and he expects a roughly 50% probability of a final rate cut before June next year. (13) Most economists and policymakers still believe that interest rates will remain unchanged, provided that uncertainty subsides, household savings are sufficient, and the German government significantly increases spending. (14) Analysts point out that a stable labor market, a growing service sector, and German fiscal stimulus will provide support for the Eurozone economy. (15) Inflation may fall below target next year but will subsequently rebound; policymakers have clearly shown they can tolerate temporary deviations. (16) The real test may come in December when central banks release a new version of their economic outlook, including preliminary forecasts for 2028.
