ECB Rate Outlook
Bank of America analysts assess that the European Central Bank (ECB) is likely to implement another interest‑rate increase despite the euro‑zone’s subdued growth outlook. The ECB raised its deposit rate to 2.25 % earlier in June and has signalled a meeting‑by‑meeting, data‑dependent approach. BofA expects a further hike in July, although lower oil prices after recent Middle‑East developments could push the move to September or result in a temporary pause. The analysts note that the ECB’s June projections align with market expectations for two to three additional rate hikes in the current tightening cycle. Looking ahead, economists anticipate the ECB beginning to ease policy in 2027 as inflation pressures ease, with the policy rate potentially returning to around the 2 % target or falling below it if inflation undershoots the goal.
Balance Sheet Reduction
Beyond rate policy, the ECB’s balance‑sheet reduction is highlighted. Quantitative tightening has cut the balance sheet from a peak of €8.3 trillion in 2022 to roughly €6.3 trillion by the end of 2025, and further declines are expected as maturing assets are not fully reinvested. This shrinking excess liquidity could eventually influence money‑market conditions and increase demand for ECB funding operations, making balance‑sheet developments a more important part of the policy outlook alongside decisions on interest rates.