Finance
ECB should keep rates at 2% unless new shocks hit, IMF says
Published by Global Banking and Finance Review
Posted on July 2, 2025
2 min readLast updated: January 23, 2026
Global Banking and Finance Review
Company
Published by Global Banking and Finance Review
Posted on July 2, 2025
2 min readLast updated: January 23, 2026
IMF advises the ECB to maintain a 2% rate unless new inflation shocks arise, differing from market expectations of a rate cut to 1.75%.
SINTRA, Portugal (Reuters) -The European Central Bank should keep its deposit rate at the current 2% level unless new shocks materially change the inflation outlook, Alfred Kammer, head of the IMF's European Department, said on Wednesday.
The ECB has cut rates by two percentage points since June 2024 but signalled a pause for this month, even if financial investors still see another cut to 1.75% later this year.
"Risks around euro zone inflation are two-sided," Kammer told Reuters on the sidelines of the ECB Forum on Central Banking in Sintra, Portugal.
"This is why we think the ECB should stay the course and not move away from a 2% deposit rate unless there is a shock that materially changes the inflation outlook. Right now we don’t see anything of such magnitude."
Part of the reason why the IMF is taking a different view than markets is because it anticipates higher inflation next year than the ECB.
The ECB projects price growth falling below its 2% target for 18 months from the third quarter, bottoming out at 1.4% in early 2026.
"For next year, we see inflation at 1.9%, which is above the ECB’s own projections, partly because we take a different view on energy prices,” Kammer said.
While most ECB policymakers see inflation risks balanced, there is an increasing group, including Finland's Olli Rehn, Belgium's Pierre Wunsch and Portugal's Mario Centeno, who have all warned about the risk of inflation falling too low.
(Reporting by Balazs Koranyi; editing by Mark Heinrich)
The IMF suggests that the European Central Bank should maintain its deposit rate at 2% unless new shocks materially change the inflation outlook.
The ECB has cut rates by two percentage points since June 2024 but has indicated a pause for this month, with investors anticipating a potential cut to 1.75% later this year.
The IMF projects inflation at 1.9% for next year, which is above the ECB’s own projections, partly due to differing views on energy prices.
The ECB aims for a price growth target of 2%, but it projects that inflation will fall below this target for 18 months, bottoming out at 1.4% in early 2026.
While most ECB policymakers see inflation risks as balanced, some, including officials from Finland, Belgium, and Portugal, have warned about the potential for rising inflation.
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