SNAPSHOT2 min read

End of the road for ECB rate rises?

The European Central Bank (ECB) has kept its key interest rates unchanged for the first time since June 2022 – potentially marking the end of its rate hiking journey.



Azad Zangana
Senior European Economist and Strategist

In response to some of the highest inflation rates since the 1970s, the ECB‘s main refinancing rate has risen from zero in June 2022 to 4.5% in September 2023, while the deposit rate rose from -0.50% to 4%.

The decision not to tighten policy further was in response to a weakening eurozone economy, as manufacturers struggle with weakening domestic and external demand, while services companies are also reporting slower activity.

The inflation rate has also moderated substantially in recent months, falling from a peak of 10.6% y/y in October 2022 to 4.3% y/y in the latest data release in September. Much of this fall was caused by the impact of higher energy prices last year dropping out of the annual comparison of prices. Inflation is expected to fall further, but ECB president Christine Lagarde suggests that risks were skewed towards higher inflation.

Lagarde said: “Inflation is still expected to stay too high for too long, and domestic price pressures remain strong.”

But in reference to the decision to hold, she said: “We are determined to ensure that inflation returns to our 2% medium-term target in a timely manner. Based on our current assessment, we consider that rates are at levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to our target.”

Although there was no indication that further rate rises were off the table, the language used suggests that the ECB would need to see a significant deterioration in the inflation outlook. Indeed, the decision to keep policy on hold was largely expected by financial markets.

Looking ahead, the next policy move is likely to revolve around the ECB’s balance sheet, and the pace of the unwind of support. Upward pressure on bond yields of late were blamed on “external factors”, but it is clear that the ECB still has one eye on the ability of countries, particularly Italy, to fund itself in an affordable and orderly manner.

As for interest rates, the next move is likely to be a cut, probably in 2024. How soon and by how much in the coming year will depend on the progress made to lower inflation back to target.

This article is issued by Cazenove Capital which is part of the Schroders Group and a trading name of Schroder & Co. Limited, 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. 

Nothing in this document should be deemed to constitute the provision of financial, investment or other professional advice in any way. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested.

This document may include forward-looking statements that are based upon our current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements.

All data contained within this document is sourced from Cazenove Capital unless otherwise stated.


Azad Zangana
Senior European Economist and Strategist


Interest rates
Central banks
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