KPMG comments on today’s European Central Bank rate

"The ECB kept interest rates unchanged for the second consecutive meeting, with the decision driven by a stable outlook for both growth and inflation. In contrast to the Federal Reserve and the Bank of England, the ECB finds itself in a comparatively enviable position, with inflation close to target and the labour market continuing to show resilience. This backdrop gives the Governing Council greater policy flexibility as it assesses the balance of risks to the outlook.

Today’s meeting was accompanied by an updated set of projections which were broadly unchanged from June. Inflation was revised up slightly for 2025, but is still projected to return close to target in the medium term, while growth was nudged down marginally for 2026. This was likely enough evidence for the ECB to maintain its wait and see approach.

Despite today’s decision to leave rates on hold, risks to the growth outlook remain. While the recent trade agreement with the US offers some clarity for businesses, higher tariffs, coupled with a stronger euro, are likely to weigh on export growth in the second half of the year. Growth in Germany also remains subdued, with the effects of fiscal stimulus expected to take time to filter through. Meanwhile, fiscal concerns and political uncertainty in France are set to dampen sentiment further. Against this backdrop, we see scope for one additional rate cut this year, most likely at the December meeting, which could take the key deposit rate down to 1.75% by the end of 2025".