There's No Need for The ECB to Move on Thursday, Says Berenberg

08:38 AM EDT, 09/09/2025 (MT Newswires) -- The European Central Bank doesn't need to change its monetary stance at Thursday's policy meeting, said Berenberg.

So far this year, the eurozone economy has proved to be more resilient than expected, noted the bank. Trade policy uncertainty has decreased somewhat and inflation is hovering around the ECB's target of 2%.

Thursday's ECB policy meeting is likely to be one of the more uneventful ones, with the deposit rate widely predicted to stay at 2.0%, stated Berenberg. The most exciting question is how the ECB would react if the current political turmoil in France were to cause financial market instability.

However, as is often the case with political issues, ECB President Christine Lagarde will likely remain tight-lipped at the press conference, as she should, pointed out the bank.

At the last ECB meeting on July 24, Lagarde said in the press conference: "we are in a good place now to hold and to watch how these risks develop over the course of the next few months". This assessment has probably not changed significantly since then, and some favorable developments over the summer have further strengthened the wait-and-see approach.

The trade agreement between the United States and the European Union has reduced uncertainty, added the bank. Gross domestic product growth in the eurozone surprised in Q2 to the upside and the unemployment rate has fallen to a historic low of 6.2%. After a breather in Q3 caused partly by a likely fall in exports to the U.S., Berenberg expects the eurozone economy to regain momentum towards the end of the year.

This is partly due to the ECB's monetary policy, which is already in expansionary territory and as such stimulating the real economy. The inflation rate increased slightly to 2.1% in August, having remained at or just below the 2% target since April. Both the ECB and Berenberg continue to expect inflation to remain very close to the target until the end of the year.

As a consequence, Berenberg sees no need for the ECB to take further action in the medium term. However, in the longer term, a likely rebound in eurozone inflation, driven by higher wage growth, will probably force the ECB to increase its deposit rate from 2% to 3% from mid-2027 onwards.

Although uncertainty in trade policy has decreased, agreements with U.S. President Donald Trump unfortunately never seem to be set in stone, accoridng to the bank. In addition, one ongoing source of disagreement is the treatment of U.S. tech companies in the EU, with Trump recently once again threatening additional tariffs.

If the trade dispute were to escalate again and weigh on the eurozone economy, it would become more likely that the ECB would cut interest rates again. The same applies to a stronger euro (EUR), which makes imports cheaper and increases the risk of eurozone inflation falling below the ECB's 2% target for an extended period.

However, the euro-dollar exchange rate has recently stabilized. The euro could be supported over the next month by the fact that, unlike the ECB, the Federal Reserve is expected to cut interest rates by a further 50bps before the end of the year. Nevertheless, the currency markets have already factored in this reduction in the interest rate differential.

As a consequence, Berenberg estimates the ECB to raise its 2025 GDP growth forecast "slightly." The latest inflation numbers are broadly in line with the ECB staff forecasts, with headline inflation around target and core easing and closing in on target.

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