Economist Survey: ECB Interest Rates May "Freeze" at 2% Until the End of 2027

According to a survey of economists, the European Central Bank is expected to maintain the Eurozone lending rate at 2% by the end of 2027.

This forecast contains two pieces of information: first, the monetary policy meeting next week will keep the deposit rate unchanged; second, further actions cannot be ruled out. Specifically, one-third of respondents expect that, following the eight rate cuts already implemented, the central bank will cut rates at least once more; another 17% believe that the central bank may raise rates once or multiple times before the end of next year.

The monetary policy meeting in December is seen as a critical juncture, as this meeting will include economic forecast data for 2028 for the first time.

Although European Central Bank officials, led by President Christine Lagarde, seem to have no intention of adjusting rates recently. They expressed satisfaction with the current pace of consumer price increases and the resilience of the European economy, believing that the current monetary policy is in an "ideal state" to flexibly respond to emerging challenges.

However, potential challenges cannot be ignored. Europe is caught in the crossfire of renewed U.S.-China trade tensions, focusing on the semiconductor and rare earth sectors; at the same time, credit rating downgrades have further complicated France's fiscal difficulties, and doubts are beginning to arise about the actual effects of Germany's large-scale infrastructure and defense investment plans.

Meanwhile, potential delays in the new carbon emissions trading system on the European continent could put pressure on inflation in the coming years; the issue of overvalued assets has also intensified market concerns about potential collapse risks.

Scope economist Dennis Shen stated: "We do not expect any further rate cuts this year, but the European Central Bank will retain flexibility in its policy options." He also warned that if the euro to dollar exchange rate significantly appreciates beyond the 1.20 mark, and if the Federal Reserve implements additional rate cuts, risks may arise. "The likelihood of further policy easing by the end of this year or next year is greater than tightening."

If the economic outlook released in December shows that the inflation rate for 2028 will be significantly below the 2% target, it will become an important basis for supporting the central bank's further rate cuts. Currently, the market believes that if the inflation rate drops to 1.6%, it may trigger a new round of rate cuts.

Currently, the short-term risks facing economic growth and inflation are generally considered roughly balanced, but long-term uncertainty remains high. Nevertheless, more respondents are concerned about upward price risks rather than downward risks—September's Eurozone inflation rate rose to 2.2%, marking the fastest growth in five months Nerijus Maciulis, Chief Economist at Swedbank, pointed out: "Inflation rates remain close to target levels, and despite fluctuations in some growth indicators in recent months, there are currently no signs indicating a need to adjust the monetary policy stance." He believes that "Lagarde is likely to reiterate the core view from the September meeting—that the current policy is in an 'ideal state.'"

Analysts believe that even if Lagarde and her colleagues decide to cut interest rates again, the impact on boosting demand will be very limited. Just over 60% of respondents indicated that the constraints on economic growth are the result of both cyclical and structural factors; among the remaining respondents, most believe that the sluggish economic growth in the Eurozone is more attributable to structural factors.

David Powell, Senior Economist at the Eurozone, stated: "The European Central Bank is sticking to its 'Goldilocks scenario' (referring to an ideal state where the economy is neither too hot nor too cold): the short-term economic weakness caused by U.S. tariffs will soon be offset by Germany's fiscal stimulus policies, allowing the Governing Council to maintain interest rates unchanged. Achieving this expectation requires many factors to develop favorably—but we are skeptical about whether this scenario can be realized."

Supply chain issues are also one of the factors hindering the economy, such as the European automotive industry facing threats of production disruptions. Previously, the Dutch government took over the Chinese-controlled chip manufacturer Nexperia under U.S. pressure, which prompted China to implement export restrictions, further exacerbating the supply chain dilemma.

Political challenges are another significant drag. After yet another government collapse in France, President Macron is struggling to maintain his governing position; meanwhile, in Germany, public support for Chancellor Merz is also declining.

Economists Pia Fromlet and Marcus Widen from Swedbank predict that interest rates will remain unchanged until the end of 2027, but they also add that if inflation continues to slow and economic growth shows signs of fatigue, the question of "why not cut interest rates" will be difficult to avoid