MNI ECB WATCH: ECB To Hold Again, But Downside Bias Persists

The European Central Bank is set to hold its deposit rate at 2% for a second consecutive meeting since June’s 25-basis-point cut on Thursday, and will publish fresh quarterly projections as policymakers try to determine whether they have reached the bottom of the easing cycle.

While in the last Governing Council meeting in July, policymakers considered that their June projections scenario had held up well given the latest inflation readings and a provisional resolution of the trade dispute between the U.S. and the EU, uncertainty remains high. (See MNI: U.S. Tariffs Seen Hitting Italy Exports, GDP, From 2026)

The risk bias among policymakers remains cautiously to the downside, with a data-dependent, meeting-by-meeting approach retaining the possibility of another rate cut should there be return of economic weakness or a risk of  a greater-than-expected inflation undershoot below levels which are already close to the 2.0% target. (MNI SOURCES: Data-Led ECB To Hold A Cut In Reserve If Needed)

Eurozone inflation was stable at 2% in July, while August preliminary data showed a small uptick to 2.1%, in line with analysts’ expectations. June’s baseline scenario pointed to inflation at 2% this year, before it falls to 1.6% in 2026 and returns to 2% in 2027.

FRANCE

The meeting come as France’s fiscal position is in under close scrutiny, as President Emmanuel Macron tries to assemble a new government following the resignation of Francois Bayrou as prime minister after losing a confidence vote.

While the ECB has tools, including its Transmission Protection Instrument, which could allow it to buy French bonds in the event of severe market stress, the point where officials would have to consider some action remains distant. French 10-year bonds yield 3.42%, higher than for Portuguese or Greek debt.