The ECB keeps interest rates unchanged: Fund managers react
Updated:
31 OCT, 2025
By Joanna Piwko from RankiaPro Europe
The European Central Bank has kept interest rates steady at 2% in yesterday’s meeting, matching market expectations. Led by Christine Lagarde, the ECB is taking a cautious approach as it monitors developments in trade tensions and geopolitical conflicts.
Let's review the experts’ insights on this outcome.
ECB: An early 2026 cut is a coin flip
- Roelof Salomons, Chief Investment Strategist at the BlackRock Investment Institute
The ECB kept policy rates unchanged at 2% today, as markets expected. We see December’s meeting with new 2028 forecasts as the next key waypoint. For now, the data-dependent message still holds: subdued activity and inflation hovering near the ECB’s 2% target paints the picture of a steady, but not strong economy. The hurdle for future rate cuts remains high.
We think the odds of another rate cut early next year are effectively a coin flip. ECB President Christine Lagarde acknowledged that the downside risks to growth have eased thanks to cooling trade tensions. Business sentiment has improved, with data hinting at some early impact from the EU loosening restrictions on government spending. The jury is still out, but the direction of travel is encouraging.
Fiscal easing and improving sentiment may support growth, but disinflationary forces persist. Inflation is expected to dip below target in early 2026 before picking back up to 2% — but we’re not convinced yet given geopolitical tensions and a strong euro.
The discussion on money and credit was the most interesting part. Lending figures show an ongoing but still modest recovery. Corporate lending was slightly weaker, with credit standards tightening unexpectedly. On the household side, credit standards were unchanged. Lagarde notably highlighted how the ECB is progressing on plans for a digital euro.
We remain neutral on European equities and government bonds, given subdued growth and uncertainty over inflation. We prefer European credit for income and quality. We expect investors to demand more compensation for the risk of holding longer-term government bonds across Europe, thanks to rising bond issuance. But across all assets we see selective opportunities in financials, defence, and infrastructure — sectors benefiting from higher fiscal spending and pro-growth policy shifts.
December projections could redefine the ECB’s path
- Sandra Rhouma, Vice President and European Economist on the Fixed Income Team at AllianceBernstein
The ECB Governing Council kept its key interest rates unchanged at 2.0%, 2.4% and 2.15%, as widely expected. Forward guidance remains unchanged as the Governing Council sticks to a meeting-by-meeting approach. The press conference was uneventful and did not provide guidance on the Governing Council’s next steps. I still expect a cut in December, but given the ECB’s reaction function and recent data, the bar is higher than a few months ago.
Recent data supports the hawks, December projections might not. Inflation is on target; GDP growth is more resilient than expected and rates are already back to neutral. It is indeed a comfortable place to be in for the Governing Council. That said, the outlook might not be as reassuring. Private demand remains weak and the drag from external demand could intensify as tariffs continue to bite. Resiliency does not mean strong growth but less weak. Underlying disinflation has slowed, yet has not ended, and further wage and services disinflation will continue to show in the data. In addition, the latest Bank Lending Survey showed an unexpected net tightening of credit standards to firms and consumers, driven by higher perceived risks to the outlook. This could further weight on consumption and investment in the future.
Focus will shift to the December forecast, which will extend the horizon to 2028. Several factors will play out in December, which include stronger EUR, trade, and fiscal policy. Inflation is already below target in 2026 and 2027 at 1.7% and 1.9%, respectively. While the undershoot is mild, it could become larger and more persistent, in which case the Governing Council will have to respond in order stay in the “good place” they are currently at.
Further easing is significantly more likely than a tightening. Even as the bar is higher for the ECB to cut rates again, overall conditions are more supportive of a cut than policy heading towards the opposite direction. A couple of banks have included a rate hike in 2026, and the market implied policy rate stands at 2.26% in 3 years. It is hard to justify tightening monetary policy by the end of 2026 or beyond, even when considering higher fiscal spending in Germany. President Lagarde also pushed back against that scenario during the press conference. In my view, current rates are the upper limit of the neutral rate and, unless major structural shifts unfold, the ECB won’t need to go above that limit.
The ECB trusts that its policy is working
- Irene Lauro, Economist for the Eurozone at Schroders
The ECB’s announcement today to keep interest rates unchanged shows its confidence that monetary policy is working. Eurozone GDP growth improved to 0.2% in the third quarter, and October’s PMI data points to stronger momentum in the final quarter — in line with our forecast that the region’s growth is finally gaining traction.
Political uncertainty in France could weigh on its economy, but in other countries, the outlook is improving, suggesting that monetary policy is reaching the real economy. The strong rebound in the services sector indicates that consumers are spending more, and the manufacturing sector is also expected to recover, supported by increased German fiscal stimulus thanks to rising defense orders.
We remain confident that growth will strengthen next year, supporting the ECB’s decision to keep interest rates unchanged until 2026. However, if inflation falls below current forecasts, the ECB could follow the Fed’s risk management approach and implement a precautionary rate cut. For now, the outlook for the euro area has improved positively after months of stagnation.
ECB Meeting: See You in December
- Andrea Campisi, Senior Investment Manager at Pictet Asset Management
Rates unchanged, flexibility in response, and “data dependence” for the ECB — on a day that also saw the release of France’s third-quarter GDP, which came in above expectations, and Spain’s inflation, which surprised to the upside, driven by energy prices and air transport. Lagarde confirmed that the current level of rates is consistent with the 2% inflation target. Risks to growth have slightly decreased, while inflation risks remain balanced, with expectations for inflation to fall below target in 2026 and then rise back toward target in 2027, supported by fiscal impulses.
The reduction in uncertainty related to tariffs now allows time to assess their impact — which is why the December meeting will be key, as updated growth and inflation projections will be released. This will coincide with greater clarity on Germany’s fiscal plan, the Franco-political and fiscal crisis, and the overall cruising speed of the Eurozone economy.
In this context — marked by uncertainty, inflation trending below expectations, exports burdened by tariffs, and a 12% appreciation of the euro — we continue to believe that the market should price in a higher probability than the current 10% of a possible rate cut within the next 3–6 months to support growth, much like the Fed’s move yesterday. The November and December data will confirm, or not, whether the current rate level is neutral, as identified by Lagarde.
The risk remains broadly balanced
- Thomas Ross, Director of High Yield at Janus Henderson
Today, the European Central Bank (ECB) held the deposit facility rate (DFR) unchanged at 2%. With inflation at around target and growth at trend-like levels, the ECB has little reason to adjust monetary policy and the 2% policy rate is likely a level considered the mid-point of a neutral range by the majority of Governing Council (GC members). We tend to agree with the GC majority view that the risk to the medium-term inflation outlook remains broadly balanced. The ECB’s reaction function is not geared towards fine-tuning policy, and we continue to expect a prolonged period of inaction on policy rates.
The most balanced choice for the eurozone
- Pedro del Pozo, Director of Financial Investments at Mutualidad
The ECB’s decision to keep interest rates unchanged at 2% essentially reflects two key factors.
On the one hand, we find ourselves in an economic phase that differs from that of the United States. In the Old Continent, with the exception of Spain — which, on a macroeconomic level, seems more aligned with the evolution of the U.S. economy — we are experiencing a mild economic acceleration that does not justify further cuts.
On the other hand, inflation risks have slightly increased as a result of stronger activity and rising national debt.
In this context, keeping rates steady appears to be the most balanced decision, within a framework in which the eurozone seems to have reached a certain equilibrium between growth and inflation, while awaiting new macroeconomic data and geopolitical developments.
