Inflation gradually approaching target, economy showing resilience, European Central Bank remains on hold again

According to Zhitong Finance APP, despite the pressure from increased tariffs in the United States, the European Central Bank (ECB) has kept borrowing costs unchanged for the second consecutive meeting, based on the assessment that current inflationary pressures have been effectively contained and the Eurozone economy remains robust.

On Thursday, the ECB maintained the deposit rate at 2%, a result that aligns perfectly with analysts' expectations. Policymakers did not provide clear guidance on future policy directions but continued to emphasize that they will flexibly formulate policy measures at each meeting based on the latest economic data.

The ECB stated in its announcement: "The current inflation rate is close to the medium-term target of 2%, and the Governing Council's overall assessment of the inflation outlook remains unchanged."

Most officials believe that the current interest rate level is sufficient to address multiple challenges, including the impact of tariffs imposed by the Trump administration, geopolitical tensions, and recent market volatility triggered by political turmoil in France. Currently, the Eurozone economy, composed of 20 member countries, continues to grow, with the inflation rate slightly above the 2% target but overall within a controllable range.

The latest quarterly economic forecast indicates that the Eurozone Consumer Price Index (CPI) is expected to rise by 1.7% next year, closer to the target than the previous forecast of 1.6%; however, by 2027, the inflation rate is expected to be 1.9%, lower than previously anticipated. In terms of economic growth, the Eurozone's Gross Domestic Product (GDP) is expected to grow by 1.2% this year, with a projected growth rate of 1% in 2026.

Prior to this, the ECB had cut interest rates eight times within a year until it paused adjustments in July. This series of rate cuts reduced its interest rate level from a peak of 4% to the current "neutral range"—a level that neither suppresses economic growth nor actively stimulates the economy. Currently, analysts and investors generally believe that the ECB will not further cut interest rates this year.

While the ECB remains on hold, the Federal Reserve is preparing for its first rate cut since December of last year next week. This shift is primarily due to signs of weakness in the U.S. labor market, but the U.S. CPI for August, released on Thursday, rose by 2.9% year-on-year, higher than the 2.7% increase in July.

The ECB expects that in the medium term, the Eurozone inflation rate will not significantly deviate from the 2% target. Most officials are confident that inflation, which had surged after the outbreak of the Russia-Ukraine conflict, has now stabilized.

However, some officials hold different concerns. Gediminas Simkus, the Governor of the Bank of Lithuania, and others worry more about inflation remaining below the target for an extended period, believing that factors such as a stronger euro may exacerbate this risk; while other officials, including hawkish ECB Executive Board member Isabel Schnabel, believe that the risks of rising inflation are greater, pointing out that escalating trade frictions and a surge in European defense spending are major driving factors

At the same time, the Eurozone economy is showing strong resilience. Although the trade agreement reached between the EU and the United States imposes a 15% tariff on most export goods, causing dissatisfaction in the industry, market confidence has rebounded, and the prolonged downturn in the manufacturing sector is nearing its end.

However, this week, the French government collapsed due to an unpopular budget reform plan, bringing new challenges to the Eurozone economy. On Wednesday, Sébastien Lecornu was appointed as the Prime Minister of France, marking the fifth Prime Minister in the country within two years