ECB Minutes: Interest rates near neutral range, inflation risks "broadly balanced"
The minutes of the European Central Bank's July meeting show that most policymakers believe the current inflation risks are in a "broadly balanced" state, with consumer price expectations remaining stable. Although some committee members raised considerations for further interest rate cuts, keeping the deposit rate at 2% after eight reductions is still seen as a "prudent" choice. The meeting emphasized that the current interest rate level has basically completed the adjustment cycle, and future decisions will focus more on observing economic data performance. There are divergences in the inflation outlook, with some committee members believing that inflation risks are tilted to the downside over the next two years, while others pointed out that medium-term risks are tilted to the upside
According to the Zhitong Finance APP, the minutes from the European Central Bank's July meeting show that most policymakers believe the current inflation risks are in a "broadly balanced" state, with consumer price expectations remaining stable. During the interest rate meeting on July 23-24, although some members raised considerations for further rate cuts, keeping the deposit rate at 2% after eight reductions is still seen as a "robust" choice.
The meeting summary emphasizes that the resilience recently displayed by the Eurozone economy has been fully reflected in the baseline forecast released in June. Despite facing multiple challenges from tariff policies to geopolitical conflicts, particularly the 15% tariff imposed on Eurozone exports following the trade agreement between the EU and the US in early July, the current interest rate level is still considered to be in a neutral range, with the financial environment remaining stable.
Data shows that the economic data released since the June meeting further validates the rationality of the inflation trend, with the foundation for price stability around the 2% target remaining unchanged in the medium term.
Regarding the direction of interest rate policy, some members pointed out that there are downside risks to output and inflation, which may support further rate cuts; however, more opinions suggest that maintaining the status quo can better address the dual risks. The meeting clarified that policy communication should remain cautiously neutral to avoid sending clear signals.
It is noteworthy that the current interest rate level has basically completed the adjustment cycle, and future decisions will focus more on observing economic data performance—as the summary states, "waiting for more information has high selection value."
There are divergences in the inflation outlook: several members believe that inflation risks are tilted to the downside over the next two years, especially under the influence of energy price factors, with the overall inflation rate expected to fluctuate around the current level in 2025, potentially reaching a low of 1.5% in the first quarter of 2026.
However, some members pointed out that medium-term risks are tilted to the upside. Core inflation indicators have fallen to a three-year low of 2.3%, and it is expected to further decline to 2% by early next year, which is basically in line with the medium-term target.
Regarding the euro exchange rate trend, the meeting believes that recent fluctuations include structural factors, and the likelihood of a reversal in the short term is low.
Overall, the Governing Council emphasizes the need to maintain a "dual perspective," focusing on both upward inflation pressures and preventing weak growth, reserving decision-making flexibility for future meetings to ensure a quick response to significant economic shocks.
The market generally expects the September meeting to maintain interest rates unchanged, while economists predict a new round of rate cuts may begin in December, although investors have not fully priced in these expectations
