The key interest rate is likely to remain unchanged for the time being.

At the beginning of June, the European Central Bank cut interest rates for the first time in almost five years – but according to experts, it is now likely to take a break again at its next meeting on Thursday. The development of inflation still seems unpredictable, especially in the services sector.

In an unprecedented series, the European Central Bank raised key interest rates ten times in a row between mid-2022 and October 2023. The central bank then paused interest rates between October 2023 and June 2024 before the ECB Governing Council decided at its last meeting to cut the three key interest rates by 0.25 percentage points each.

Since then, the central bank’s key interest rate at which commercial banks can borrow money from the ECB has been 4.25 percent. The short-term borrowing rate, the top refinancing rate, has fallen to 4.5 percent. The deposit rate relevant to savers has fallen to 3.75 percent.

Decide only based on data.

European Central Bank President Christine Lagarde has repeatedly questioned whether further interest rate moves will follow at future meetings. “We know where we stand now, but there will be more hurdles along the way,” she said after the council’s last meeting in early June. Lagarde stressed that central bankers will continue to rely on data on inflation, expectations and the effects of their monetary policy and only then make decisions.

According to ING analyst Carsten Brzeski, “there has not been much important data published” since the June meeting. The readings that do exist tend to point to weaker growth, lower headline inflation, but to “slower core inflation and services inflation.”

Eurozone inflation was recently 2.5 percent, but core inflation excluding food, energy, alcohol and tobacco was slightly higher at 2.9 percent. Services were 4.1 percent more expensive than in the same month last year.

Interest rate hike in September?

Fritzi Kohler-Gebe, chief economist at state development bank KfW, believes the ECB’s “wisdom” in holding off on further cuts seems “appropriate”. But she expects another rate move in September. “The prerequisite, however, is that by then there are increasing signs of weaker wage growth,” she explained.

At Thursday’s meeting, Brzeski does not expect any indication of how the meeting will proceed beyond September. He explained that this would be “premature, if not irresponsible.” The situation ahead of the September meeting, before which more data will be available, is not easy for the ECB: on the one hand it is fighting stubborn inflation, but on the other hand, the June decision should not look like a mistake.