ECB Could Start Raising Rates "Moderately" in Late 2026, Says UBS

11:02 AM EDT, 09/03/2025 (MT Newswires) -- UBS thinks the European Central Bank's easing cycle has ended and expects the ECB to keep the depo rate unchanged at 2% on Sept. 11.

The bank estimates the ECB to reiterate that, with rates at 2%, it sees itself "in a good place" and to signal that it will maintain a data-dependent, meeting-by-meeting approach.

Although UBS predicts the eurozone economy to stagnate in H2-2025 due to United States tariffs, and inflation to be in line or below the 2% target over the coming quarters, the bank thinks the ECB won't cut rates further in light of the sizeable fiscal stimulus in support of defense (European Union) and infrastructure (Germany), which is likely to be increasingly visible from early 2026.

UBS believes this fiscal impulse might increase inflationary pressures over the course of 2027, which would prompt the ECB to start raising rates moderately as of the end of 2026.

The bank acknowledges that a stronger euro (EUR) and higher bond yields may potentially reduce -- or remove -- the need for the ECB to hike rates already in late 2026.

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