ECB "Is Done," Barring Surprises, Says Berenberg

10:49 AM EDT, 09/11/2025 (MT Newswires) -- By reiterating the message that European Central Bank (ECB) policy is "in a good place," President Christine Lagarde on Thursday moved further towards Berenbeg's call that the eurozone easing cycle is over.

A slight downward revision to the 2027 inflation forecast gave the new staff projections a slightly dovish feel, but Lagarde was quick to play this down, noted the bank. Lagarde blamed the tweak on the current strength of the euro (EUR), and said it was too small to merit a policy adjustment.

Thursday's unanimous decision to keep the deposit rate at 2.00% suggests that the committee is content with policy where it is, said Berenberg. Barring surprises, the ECB will keep policy on hold.

Following an upside surprise in eurozone gross domestic product in the first half of the year, the risks to growth are now more balanced, according to Lagarde. But while the ECB nudged up its forecast for growth and inflation slightly in 2025, it offset that by lowering its forecasts for 2026.

Although tariff uncertainty has eased following the European Union-United States trade deal, the ECB expects the combination of a 15% U.S. import tariff on EU goods and a strong euro to hurt external demand and reduce import prices. A 0.3% increase in the euro on the day due to weak US labor market data shows that effect won't fade anytime soon, stated the bank.

On the other side of the ledger, the German stimulus should support both growth and inflation, added Berenberg. After setting out a long laundry list of upside and downside risks to growth and inflation in the press conference, Lagarde concluded that the ECB is "more balanced" than in July. A rate cut wasn't justified then, so it's certainly not now.

Berenberg suspects that the boost from past interest rate cuts, the gradually unfolding German stimulus and low unemployment will create enough domestic price pressure to keep inflation at the 2% target with interest rates where they are. Unlike the ECB, the banl estimates growth to accelerate to 1.5% year over year in 2027 after 1.2% in both 2025 and 2026.

A rebound in wage inflation in 2027 due to mounting labor shortages will then force the ECB to raise its deposit rate gradually to the neutral level of 3% from mid-2027 onwards, in the bank's view.

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