The European Central Bank's interest rate path remains unclear, with the last rate cut possibly delayed until December

According to the Zhitong Finance APP, a survey of economists shows that the European Central Bank (ECB) may delay its last interest rate cut until December, without leading investors to believe that the easing cycle has ended. The survey indicates that most respondents still expect the ECB to remain on hold at next week's policy meeting, and then make a final cut of 25 basis points in September, lowering the deposit facility rate to 1.75%. Meanwhile, half of the respondents expect the ECB to choose to keep rates unchanged for three consecutive meetings (July, August, September) without letting the market believe that rates have bottomed out, with this timeframe being longer than previously due to uncertainties in trade.

ECB officials, led by Christine Lagarde, have fully signaled a "pause in rate cuts" this month. Lagarde stated that the ECB is currently in a "good position" to handle any challenges that may arise in economic growth and inflation.

However, after the summer, the consensus on the direction of policy has greatly diminished. ECB Executive Board member Isabel Schnabel believes that the "threshold for another rate cut is very high," while fellow ECB Governing Council members Olli Rehn and Francois Villeroy de Galhau are concerned that if the euro strengthens further, the inflation rate may struggle to reach the ECB's 2% target.

HSBC's senior economist for the Eurozone, Fabio Balboni, stated: "The decision in July should be relatively straightforward, and most council members are likely to support keeping rates unchanged." "While some may view this as a pause, others may interpret it as meaning that the rate cut cycle has ended, which could spark discussions about the rate path after July."

The survey shows that about a quarter of respondents believe that the ECB has completed its rate cuts. Nearly half of the respondents predict that the last rate cut will occur in September, while another 21% expect it to happen in December.

Mariano Valderrama, chief economist at Intermoney, predicts that December will mark the starting point for ECB rate hikes. Although this is the earliest rate hike forecast, about one-fifth of respondents expect a rate increase before the end of 2026.

David Powell, a senior economist for the Eurozone, stated: "The ECB is in a wait-and-see mode. We believe that further rate cuts will ultimately occur in September and December. Meanwhile, we expect the ECB's wording after the July 24 meeting to be similar to June, maintaining an open attitude towards future rate cuts but without making commitments."

However, regardless of which path policymakers choose, it will largely depend on the outcome of trade negotiations between the EU and the United States. After the EU hinted at nearing an agreement, U.S. President Trump threatened to impose a 30% tariff on the EU

Julie Ioffe, a European macro strategist at TD Securities, stated: "The progress of trade negotiations between the EU and the US is currently the most critical observation point, which will break the current balance between strong demand in the Eurozone and weak external demand." "Given that an agreement is unlikely to be reached before next week's European Central Bank meeting, the committee will 'not be able to indicate whether further rate cuts are necessary or whether the terminal rate has been reached.'"

Jussi Hiljanen, chief rate strategist at SEB Research, pointed out that the main challenge at present is "to avoid guiding the market to believe that the next rate cut will or will not occur." Traders currently expect the probability of a rate cut by the European Central Bank in September to be less than 50%. However, a rate cut before the end of the year has almost been fully priced in by the market.

The European Central Bank will update its economic forecasts in September and December. Last month, the European Central Bank projected that inflation would stabilize at 2% by 2027, averaging 1.6% in 2025. Analysts believe that the risks in the June forecast are roughly balanced, and they have differing opinions on whether future inflation will be above or below the target.

Dennis Shen, an economist at Scope Ratings, stated: "In the short term, downside risks may be greater; in the medium term, the upside risks to inflation may be higher." He pointed out that cheap goods from China and other countries affected by US tariffs, if resold to Europe, could exert downward pressure on prices, while the appreciation of the euro would also suppress inflation.

Even with recent pullbacks, the euro to dollar exchange rate has risen nearly 12% this year and is currently trading around 1.16. European Central Bank Vice President Luis de Guindos stated this month that when the euro to dollar exchange rate reaches 1.20 (the highest in over four years), the economy may encounter difficulties.

However, survey respondents seem to have a higher tolerance. Only about a quarter agree with Luis de Guindos' view, while the rest believe that the euro to dollar exchange rate rising to 1.35 would become a problem. Many respondents indicated that the speed and magnitude of appreciation are equally, if not more, important factors in assessing the downside risks to prices.

Meanwhile, the upside risks to inflation have not been alleviated. Sylvain Broyer, an economist at S&P Global Ratings, stated: "The risk of increased public spending could keep core inflation above the target." "The European Central Bank should not assume that core inflation will easily fall back to the target in the coming years and remain at that level for the long term."