ECB not expected to cut rates through the end of 2026, Barclays says

Investing.com - The European Central Bank is expected to leave its policy rate unchanged at its December meeting, Barclays analysts have said, as the brokerage revised its earlier projection for a 25-basis point drawdown.

In a note, the analysts added that they do not anticipate the ECB will alter interest rates again through the end of 2026, arguing that officials have conveyed "very little, if any, conviction" around when it will change its policy stance.

On Thursday, the ECB kept interest rates on hold for the third meeting in a row, as policymakers adjusted to an economic backdrop of low inflation and steady growth.

The ECB maintained its key deposit rate at 2%, the level it cut to in June having halved this key rate from a record high of 4% in the space of around a year.

ECB President Christine Lagarde later said that monetary policy was "in a good place," citing decreased downside risks to growth following Europe’s trade deal with the United States and this week’s tariff agreement between U.S. President Donald Trump and Chinese counterpart Xi Jinping.

The European Union has agreed a 15% tariff deal with the Trump administration, but the actual impact of this on the eurozone economy remains uncertain.

Similarly, the relationship between the U.S, and China, the two largest economies in the world, remains tense even after the meeting between U.S. President Donald Trump and Chinese President Xi Jinping in South Korea earlier Thursday.

Trump described the trade talks with the Chinese president as “amazing”, announcing that he had reached a one-year agreement with Xi on rare earths and other critical minerals, and that Washington will cut fentanyl-related tariffs on Beijing to 10%.

However, the lack of concrete details on trade progress has resulted in a degree of caution.

"The ECB did not commit to a particular rate path, and reiterated its meeting-by-meeting approach" said analysts at Morgan Stanley, in a note. "Given that rates are now considered as neutral by most Governors, further rate cuts need to clear a higher bar."

Recent economic data showed that the eurozone expanded faster than expected in the third quarter, growing 0.2% on the quarter, ahead of the 0.1% growth forecast by economists, providing further evidence of resilience.

Similarly, business activity, measured in a Purchasing Managers’ Index survey, is accelerating, while sentiment in Germany, the region’s dominant economy, is improving and businesses are becoming more optimistic.

Consumer price inflation was confirmed at 2.2% on the year in the euro zone in September, up from 2.0% in August, and only marginally above the ECB’s target.

And eurozone consumers have lowered their inflation expectations for the next year and kept unchanged their view further ahead, indicating that price growth is no longer a major worry, the European Central Bank’s Consumer Expectations Survey showed earlier this week.