“The eurozone economy appears to be gradually regaining momentum,” Cyrus de la Rubia, chief economist at Hamburg Commercial Bank said in a statement accompanying the release. “The recession in the manufacturing sector is coming to an end, and growth in the services sector accelerated slightly in July.”
Financial markets expect the ECB to deliver one more interest rate cut before the end of the year on the back of policymakers’ warnings that a strong euro combined with higher import duties could cause inflation to fall well below the ECB’s 2 percent target.
However, outspoken hawk Isabel Schnabel recently said that the bar for another rate cut is “high”.
The ECB’s own forecast sees inflation dropping below target to 1.6 percent in 2026, but Lagarde downplayed its importance, saying that inflation will return to target in the medium term, which the Bank typically sees as two years ahead.
Analysts have taken Lagarde’s words as a sign that the ECB will be very cautious in its next policy steps. “Taking today’s meeting at face value, the bar for yet another rate cut this year has clearly been raised,” said ING economist Carsten Brzeski. Still, he warned against ruling out a further cut as inflation and other economic data “could rather disappoint over the summer.”
This story has been updated.