UBS Now Sees Next ECB Rate Cut in September 2025 Vs Earlier View of This Month

11:45 AM EDT, 07/14/2025 (MT Newswires) -- UBS said it changed iys European Central Bank call as it no longer expects the ECB to cut rates by 25bps to 1.75% on July 24, but now anticipates this cut to be delivered in the following meeting on Sept. 11.

The bank thinks this will be the final cut of the easing cycle. At market close on Friday, the markets were pricing only -0.2bps for the July meeting and -9.3bps for September, wrote UBS in a note to clients.

The bank forecast of a 25bps rate cut on Sept. 11 is based on (1) the likely disinflation path over the coming quarters, with headline inflation easing to 1.6% year over year or even less in Q1 2026, (2) the strong euro (which recently prompted the ECB to start verbal interventions), and (3) the likely growth slowdown resulting from United States trade tariffs.

However, in anticipation of rising inflation pressure when the defense/infrastructure stimulus gains momentum in 2026 and 2027 -- and considering the delay in monetary policy transmission of four to six quarters -- UBS thinks the ECB may not be able to keep rates at 1.75% for an extended period.

The bank believes the ECB might have to hike rates again in late 2026 to address rising inflation pressure in 2027, with eurozone labor markets subject to structural tightness due to the demographic transition. UBS factors in two hikes of 25bps each in September and December 2026, to 2.25%, moderately above neutral.

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