ECB Interest Rate Forecast: Cuts Expected in 2025 and 2026

The European Central Bank (ECB) is gearing up for further interest rate cuts in 2025 and 2026 as economic growth remains sluggish and inflation trends downward. Analysts anticipate a gradual easing of monetary policy aimed at keeping inflation near the ECB’s 2% target while supporting economic activity.

ECB Interest Rate Projections for 2025 & 2026

The ECB’s current benchmark interest rate in the Eurozone stands at 2.90%, but economic indicators suggest a steady reduction over the coming years. Market expectations indicate a series of 25-basis-point cuts, which could bring the deposit rate to approximately 2% by the end of 2025.

• Analysts predict that ECB officials will take a cautious approach to rate reductions, ensuring stability in the financial system.
• By 2026, ECB interest rates are projected to hover around 2.15%, though weaker-than-expected economic growth could push them below the 2% neutral level.

Eurozone Economic Growth Outlook

Economic growth in the Eurozone is expected to remain moderate, with slow recovery in key economies such as Germany. Forecasts indicate the following:

• GDP growth in 2025 is projected to be 1.1%, reflecting ongoing economic challenges.
• By 2026, growth is expected to rise slightly to 1.4%, highlighting persistent economic weakness.
• The ECB’s rate cuts are aimed at stimulating demand and encouraging investment.

Policymakers are monitoring economic indicators, and if growth falters further, the ECB may adjust its strategy accordingly.

Inflation Trends and Policy Adjustments

Inflation in the Eurozone has eased significantly, bringing it closer to the ECB’s 2% target. In December 2024, the annual inflation rate stood at 2.4%, and analysts expect it to move lower in 2025.

• Some forecasts indicate that inflation may dip below 2%, which could justify additional rate cuts.
• The ECB is maintaining a data-driven approach to monetary policy to ensure inflation remains stable.

Should inflation fall below target, the ECB may consider more aggressive rate reductions to maintain price stability while boosting economic activity.

ECB’s Gradual Approach to Monetary Policy

The ECB has emphasized a cautious and gradual policy approach in its monetary easing strategy. Banks, investors, and businesses can expect decisions based on:

• Upcoming inflation data and price stability trends.
• Eurozone economic performance and GDP growth concerns.
• The overall effectiveness of rate cuts in stimulating economic activity.

A data-dependent monetary policy remains the ECB’s focus in 2025 and 2026 as it works to balance inflation control with economic support.