ECB Should Keep Interest Rates Steady Unless New Shocks Hit

ECB Should Keep Interest Rates Steady Unless New Shocks Hit: Slovenia’s Acting Central Bank Chief
Source: Reuters | Written by Rana Das, CEO & Founder, Forex Wave Expert

The European Central Bank (ECB) should keep interest rates unchanged unless new economic shocks occur, according to Slovenia’s acting central bank chief, Primoz Dolenc. He believes further rate cuts are unnecessary at this stage, as inflation risks are currently balanced.

Steady Rates Are the Right Approach

“If there are no new economic shocks, keeping the current monetary policy stance is the right thing to do,” Dolenc said in an interview with Reuters. “This stance neither fuels inflationary pressures nor restricts economic growth.”

The ECB has already cut interest rates by 2 percentage points in the year leading up to June but has kept them unchanged since then. Policymakers are now debating whether factors like Germany’s fiscal expansion, the euro’s strength, or global tariffs could push inflation away from the 2% target.

Market expectations show little chance of another rate cut this year and only a 50% chance by June next year. This contrasts sharply with the U.S. Federal Reserve, which is expected to cut rates at both of its remaining meetings this year.

Caution on Long-Term Forecasts

Dolenc warned against putting too much weight on ECB projections that look too far into the future, such as the 2028 forecast due in December.
“Such long-term estimates are often revised,” he said. “However, if they prove to be robust over time, then they could justify monetary policy action.”

Arguments Against Further Easing

Supporters of additional rate cuts argue that inflation could undershoot the target due to several factors — political turmoil in France that could slow growth, the strong euro reducing import costs, and potential dumping of Chinese goods in Europe as U.S. tariffs rise.

Dolenc pushed back on all these points, saying that both growth and inflation are on a good path, even though uncertainty remains high.

He acknowledged that ongoing political issues in France might push up yields and bond spreads if the situation worsens, but said market reactions so far have been orderly. He added that the ECB has all the necessary tools to respond to any market instability that could threaten its mandate.

French Fiscal Concerns and Chinese Exports

France has been dealing with political and fiscal challenges as its fragile government tries to fix public finances through unpopular tax hikes and spending cuts, aiming to control a long-running budget deficit.

On China, Dolenc said there is currently no sign of major export shifts toward Europe. “So far, there has been no evidence of large-scale Chinese dumping in Europe,” he noted. “Still, we need to stay vigilant because it could potentially affect inflation.”

Conclusion

In short, Dolenc believes the ECB’s current approach — keeping rates steady — strikes the right balance between maintaining price stability and supporting growth. Unless new economic shocks emerge, he sees no need for additional easing at this time.