ECB's Muller: There's no need to change rates in July; it's not obvious that rates should be much lower even further out

ECB's Muller: There's no need to change rates in July; it's not obvious that rates should be much lower even further out

The European Central Bank (ECB) is signaling that it will not change interest rates in July, according to ECB Executive Board member Isabel Schnabel. Schnabel, who spoke at the ECB's annual forum in Sintra, Portugal, emphasized that the current monetary policy stance is appropriate and that further rate cuts may not be necessary [1].

Philip Lane, the ECB's chief economist, also stated that the last tightening cycle is over, with inflation having been brought down from a peak of 10% back to 2% [1]. Lane noted that while the ECB will remain data-dependent, it will not respond to isolated "blips" in inflation going forward. This stance is supported by the recent euro zone inflation rate of 1.9% for May, which is below the central bank's 2% target [1].

Belgian central bank chief Pierre Wunsch echoed these sentiments, noting that risks to inflation and growth in the euro area are now tilted to the downside [1]. Wunsch added that the ECB may need to be "a bit more supportive" if there are no improvements in euro zone growth, but he does not expect further rate cuts at this time.

The ECB's Vice President, Luis de Guindos, also expressed confidence in meeting the 2% inflation target, stating that the institution is on track to achieve this goal [2]. The ECB has cut interest rates eight times in the past year and expects inflation to stay below its 2% target next year.

Meanwhile, Donald Trump has publicly urged the Federal Reserve to reduce interest rates to around 1% or 2%, a significant decrease from the current range of 4.25% to 4.5% [3]. Trump's call for lower interest rates has sparked discussions about potential economic impacts and market volatility. However, the market's response to Trump's critique remains mixed, indicating potential economic uncertainties.

In the context of these developments, Schnabel's statement that there is no need to change rates in July provides a clear signal to investors and financial professionals. The ECB's data-dependent approach and the recent downward trend in inflation suggest that further rate cuts may not be necessary in the near future.

References:

[1] https://www.cnbc.com/2025/07/01/european-central-bank-chief-economist-says-tightening-cycle-done.html
[2] https://www.globalbankingandfinance.com/UK-ECB-POLICY-DEGUINDOS-dc56174e-4731-495e-b5c7-6e756318cf8d
[3] https://www.ainvest.com/news/trump-calls-50-interest-rate-cut-1-2-2507/