IMF: Unless New Shocks Emerge, the ECB Should Keep Interest Rates at 2%

According to a report by Jinse Finance, Alfred Kammer, Director of the IMF’s European Department, stated that the European Central Bank should keep its deposit rate at the current level of 2%, unless new shocks substantially alter the inflation outlook. Since June 2024, the ECB has cut rates by two percentage points and signaled this month that it would pause further cuts, even though financial investors still expect another rate reduction to 1.75% later this year. “Inflation risks in the eurozone are two-sided,” Kammer said. “That’s why we believe the ECB should stay the course and not deviate from the 2% deposit rate unless there is a shock that materially changes the inflation outlook. At present, we have not seen such a significant change.” Part of the reason the IMF’s view differs from the market is that the IMF expects next year’s inflation to be higher than the ECB’s forecast.