- Important for the ECB to have full optionality
- ECB must be able to act quickly and decisively
- ECB wants optionality in any direction
- Sentiment indicators suggest slightly upward bias
- Downside risks are quite substantial
- ECB is fine as long as deviations from 2% target are modest
- German stimulus and savings rate support growth forecast
- Right now we are in a good place on policy
- We have been seeing quite stable inflation
- Risks remain in both directions
The governor of the Austrian National Bank, Martin Kocher, reiterated that the ECB remains in a good place with the current monetary policy and can act quickly in any direction. He mentioned that recent sentiment indicators point to better conditions ahead and that the German stimulus is another positive driver for future growth outlook. Despite this forecast, the central bank won’t respond to small or short-term deviations from their 2% inflation target.
The market is not pricing any rate adjustment this year as the ECB is expected to keep the policy rate at 2.00%. The economic data has been supporting the patient stance as inflation came lower than expected (but still a bit above target) and activity indicators like the PMIs showed resilient growth. Unemployment has been stable at record lows and the uncertainty around US tariffs continues to ease.
ECB policy rate at 2% since June 2025
