ECB should keep rates at 2% unless new shocks hit, IMF says

Published 02/07/2025, 12:22
ECB should keep rates at 2% unless new shocks hit, IMF says

SINTRA, Portugal (Reuters) -The European Central Bank should keep its deposit rate at the current 2% level unless new shocks materially change the inflation outlook, Alfred Kammer, head of the IMF’s European Department, said on Wednesday.

The ECB has cut rates by two percentage points since June 2024 but signalled a pause for this month, even if financial investors still see another cut to 1.75% later this year.

"Risks around euro zone inflation are two-sided," Kammer told Reuters on the sidelines of the ECB Forum on Central Banking in Sintra, Portugal.

"This is why we think the ECB should stay the course and not move away from a 2% deposit rate unless there is a shock that materially changes the inflation outlook. Right now we don’t see anything of such magnitude."

Part of the reason why the IMF is taking a different view than markets is because it anticipates higher inflation next year than the ECB.

The ECB projects price growth falling below its 2% target for 18 months from the third quarter, bottoming out at 1.4% in early 2026.

"For next year, we see inflation at 1.9%, which is above the ECB’s own projections, partly because we take a different view on energy prices,” Kammer said.

While most ECB policymakers see inflation risks balanced, there is an increasing group, including Finland’s Olli Rehn, Belgium’s Pierre Wunsch and Portugal’s Mario Centeno, who have all warned about the risk of inflation falling too low.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers
© 2007-2025 - Fusion Media Limited. All Rights Reserved.