UBS GWM: We now expect the ECB to remain on hold at 2% for a prolonged period.

UBS GWM: We now expect the ECB to remain on hold at 2% for a prolonged period.

The European Central Bank (ECB) has maintained its interest rates at 2% for the deposit rate and 2.15% for the refinancing rate, signaling a cautious approach amidst the ongoing financial crisis in France and global trade uncertainties. This decision aligns with UBS Group's Global Wealth Management (GWM) expectations, which anticipate a prolonged period of rate stability.

ECB President Christine Lagarde emphasized that inflation remains within the bank's target range of 2%, and the economic outlook has become more balanced. However, she cautioned that renewed worsening of trade relations could further dampen exports and investment. The ECB's decision to hold rates steady is a strategic move to navigate the uncertain environment, particularly in the face of French government instability and the lingering effects of U.S. tariffs .

UBS Group CEO Sergio Ermotti recently expressed optimism about the U.S. economy but highlighted the uncertainty surrounding inflation and tariffs. He stated that the real impact of tariffs on consumers remains unclear, and the Federal Reserve's policy response is still uncertain. This perspective aligns with UBS GWM's outlook, which expects the ECB to remain on hold for an extended period .

The ECB's economic growth forecast for the eurozone has been revised upward for 2025, reflecting resilience despite higher U.S. tariffs. The bank expects inflation to remain just above its target of 2% for this year, with forecasts indicating a stable economic environment. However, the ECB has not ruled out the possibility of using its Transmission Protection Instrument (TPI) to stabilize the situation in France if the debt crisis escalates .

Goldman Sachs CEO David Solomon has warned about the slowdown of the U.S. economy, attributing it to Trump's trade policies. He believes that the Federal Reserve should not rush to cut interest rates, emphasizing the importance of central bank independence. Solomon's cautionary stance echoes UBS GWM's view that the ECB will maintain a wait-and-see approach before making further adjustments to its monetary policy .

In conclusion, the ECB's decision to keep rates unchanged reflects its cautious approach to navigating the complex economic landscape. UBS GWM's expectation of a prolonged period of rate stability aligns with the ECB's strategic approach, anticipating a wait-and-see stance before making further adjustments.