24 July 2025
If you are covering the European Central Bank decision to hold interest rates, please find below a comment from Richard Carter, head of fixed interest research at Quilter Cheviot:
“After what has been a fairly aggressive rate cutting cycle, the European Central Bank has decided to hit the brakes and pause for breath by holding interest rates at 2%. This is the first time in over a year that the central bank has chosen not to cut rates, but it is likely a pause rather than an abrupt halt given the economic circumstances going on right now.
“Inflation in the eurozone is now back at its 2% target and although services inflation remains elevated the trends are pointing in the right direction. What is probably holding most sway in this decision is the tariff uncertainty that remains abound. We are just a week away from Donald Trump’s latest deadline before his ‘reciprocal’ tariffs return, and while it looks like the US and EU may approve some sort of deal by then it is by no means a guarantee. Even if something is agreed it is also likely to be fairly light on detail. As such, the ECB will want to see what is agreed, if anything, before making its next move.
“Economic growth remains challenged in Europe and as such rates are likely to come down further later in the year. If the dollar continues to be as weak as it has this year and inflation remains in check, pressure for a rate cut in September could ramp up once again. With the ECB well ahead of other central banks in that rate cutting cycle it has diverged significantly from other central banks. Uncertainty remains the theme of the day for the ECB but as soon as those clouds lift, we shouldn’t be surprised to see it get back on the pedal and start cutting rates once again.”
