ECB - Still far from a new rate cut

The ECB still far from a new rate cut

The message from the European Central Bank (ECB) is unlikely to fundamentally change at its upcoming December meeting. The ECB is expected to keep its monetary policy unchanged and maintain a message similar to previous meetings. Recent remarks by ECB board member Isabel Schnabel have reinforced the view that a rate cut in the near term is highly unlikely : she appears rather comfortable with current market expectations (which show no change over the next 12 months, and even a low probability of rates rising).

Our expectations:

• The deposit facility rate should remain set at 2%, supported by resilient growth and controlled inflation.

• Christine Lagarde is expected to temper market expectations regarding a potential rate hike in 2026;

• To do so, she will likely rely on the ECB’s new macroeconomic projections.

• These projections should point to a better-than-expected growth scenario for both 2025 and 2026, yet still signal no inflationary pressures over the 2026–2027 horizon.

• Ultimately, Christine Lagarde should reiterate the message that the ECB will continue its “meeting-by-meeting” approach, adjusting policy based on available data.

Conclusion:

The ECB is expected to signal a growth scenario better than anticipated three months ago and confirm that monetary policy is currently in a “good” position. The earlier dovish bias is unlikely to persist. As markets have largely adjusted to Isabel Schnabel’s statements, any response following the ECB meeting should be limited. In the longer term, however, we believe current monetary expectations are too high given the Eurozone’s growth potential.

Completed 15/12/2025. This commentary is provided for information purposes only. The opinions expressed by Crédit Mutuel Asset Management are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. Crédit Mutuel Asset Management: 128 Boulevard Raspail, 75006 Paris is an asset management company approved by the Autorité des marchés financiers under n° GP 97 138 and registered with ORIAS (www.orias.fr) under no. 25003045 since 11/04/2025. Public Limited Company (Société Anonyme) with share capital of €3,871,680, RCS Paris n° 388 555 021, Crédit Mutuel Asset Management is a subsidiary of Groupe La Française, the asset management holding company of Crédit Mutuel Alliance Fédérale.