Deutsche Bank Alters ECB Interest Rate Projection for 2025, Anticipates Increase as Possible Next Step
The European Central Bank (ECB) has kept interest rates unchanged in July 2025, following a series of eight rate cuts over the past year [1][2][3]. As global trade conditions remain uncertain, the ECB is maintaining a cautious approach, with the main refinancing rate at 2.15% and the deposit facility rate at 2% [2].
Recent inflation data shows that while inflation in the Euro Area has reached the ECB's 2% medium-term target, it is forecast to undershoot that target in 2026 due to factors like a strong euro, lower energy prices, and cheaper imports [1][2]. Officials emphasize flexibility and are reluctant to move decisively without clearer data [2].
Markets currently price in a high probability of one more rate cut by the end of 2025 and anticipate a potential shift back towards tightening (rate increases) in late 2026, but this is conditional on evolving economic and trade developments [2]. A recent U.S.-EU trade deal, which imposes a 15% tariff on most EU goods, may impact these expectations [3].
Deutsche Bank, however, has withdrawn its forecast for further interest rate cuts by the ECB [4]. The bank now expects the next policy move by the ECB to be a hike at the end of 2026 [5]. This decision follows the withdrawal of similar forecasts by Goldman Sachs and BNP Paribas last week [6].
Despite these forecasts, the ECB has not announced any plans for a rate hike at this time [7]. Other major brokers, including Morgan Stanley and UBS, have flagged uncertainty around a September rate cut [8]. As a result, it is unclear that the ECB will raise interest rates in 2026 specifically due to the trade deal between the U.S. and EU.
The ECB is focused on achieving and maintaining inflation around 2% over the medium term and is likely to base any future rate decisions on a broad set of economic indicators, including inflation trends, trade developments, and currency effects [1][2][3].
References:
- ECB keeps key rates unchanged in July
- ECB pauses rate cuts as trade uncertainties loom
- U.S.-EU trade deal imposes 15% tariff on most EU goods
- Deutsche Bank withdraws forecast for further ECB rate cuts
- Deutsche Bank expects ECB rate hike in 2026
- Goldman Sachs and BNP Paribas withdraw rate cut forecasts
- ECB holds rates steady at 2%
- Morgan Stanley and UBS flag uncertainty around September rate cut
- Financial analysts at Deutsche Bank predict a potential interest rate hike by the European Central Bank (ECB) at the end of 2026, countering the current market expectations of one more rate cut by the end of 2025.
- The European Central Bank (ECB) is likely to base any future policy decisions on a broad set of economic indicators, including inflation trends, trade developments, and currency effects, in their pursuit to achieve and maintain inflation around 2%.
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