UBS Economics-European Economic Perspectives _ECB What to expect next wee...-118348834

ab20 October 2025Global ResearchEuropean Economic PerspectivesECB: What to expect next week Rates on hold; ECB to stick to data-dependent, meeting-by-meeting approachWe firmly expect the ECB to keep the deposit rate at 2% (i.e. broadly neutral) on 30 October, in line with current market pricing, which factors in a mere -0.5bps. We expect the ECB to reiterate that it sees itself "in a good place" while stressing that it will maintain a data-dependent, meeting by meeting approach and not pre-commit to a particular rate path. Overall, we see next week's gathering as an "interim meeting" that will allow the Governing Council (GC) to discuss the latest data (and how they compare to the September forecasts) and events, but these discussions would form a "bridge" towards the more important meeting on 18 December, when the ECB will issue new staff macroeconomic forecasts, which will cover 2028 for the first time. How open is the door for another rate cut?For us, the key question for the upcoming meeting is to gauge how wide the door is open for another ECB rate cut. According to our forecast, inflation will ease from 2.2% y/y in September to 2% in Q4, before temporarily falling to an average 1.6% y/y in Q1-26, due to disinflationary base effects related to energy. By May 2026, however, inflation should be back at, or close to, 2% and stay there over the remainder of 2026. But what would happen if the temporary low in Q1-26 were to be lower than we forecast, or if new disinflationary impulses (e.g. strong EUR, higher bond yields, slower wage growth, weaker external or domestic environment) were to pull inflation below 2% in H2-26? Would the ECB in this case opt for another cut? According to our base case scenario, the ECB is "done" and will not cut rates further. After all, we expect the sizeable fiscal stimulus in support of defence (EU) and infrastructure (Germany) to become increasingly visible from early 2026, which should alleviate the need of further rate cuts. However, for the coming months, the risk to our ECB rates forecast appears to be skewed to the downside. By the time of writing the markets were pricing -3.7bps for December, -2.7bps for February, -6.0bps for March and a cumulative -20.3bps by November 2026. Plenty of data between now and the ECB meetingThe GC will have plenty of data to discuss, a lot of which is still to be released: October PMIs (due 24/10), monetary and credit data for September (27/10), ECB Bank Lending Survey (28/10) and Eurozone Q3 GDP (30/10, we expect 0.0% q/q, but have signalled upside risk). The ECB will also follow the outcome of the Fed meeting (28/29 Oct) and might discuss the developments in France (but not activation of the TPI). October inflation will only be released after the ECB meeting (31/10). Deep Speak: Using AI to measure what the ECB saysSince May 2025, we have been using a AI-based approach to measuring the tone of central bank communication, applying it to the Fed, the ECB, and the