European Central Bank expected to keep rates on hold as economy weathers
Trump's tariffs
[September 11, 2025] By
DAVID McHUGH
FRANKFURT, Germany (AP) — Inflation is back under control, and the
European economy is weathering Trump's tariff onslaught better than
expected. Those are reasons the European Central Bank is expected to
keep its benchmark interest rate unchanged Thursday.
Instead, attention will focus on what bank President Christine Lagarde
will have to say about France's fiscal crisis — and any possible role
for the ECB in containing potential market turmoil that could erupt from
the country's out-of-control deficit and political logjam.
The ECB is standing pat on interest rates even as the US Federal Reserve
has held the door open for a possible cut at its Sept. 17 meeting.
The 20 countries that use the euro currency — and where the ECB sets
rate policy — showed 0.1% growth in the second quarter over the quarter
before, not great but not sliding into outright recession either despite
the disruption from U.S. President Donald Trump's new and higher
tariffs. The S&P Global survey of purchasing managers, a key indicator
of economic activity, came in at 51.1 in August, with readings over 50
indicating expansion.
The EU's executive commission calmed the mood somewhat by negotiating a
15% ceiling on US tariffs, or import taxes, on European goods brought
into the US. While that's far higher than pre-Trump tariff levels, Trump
had threatened even higher rates and the deal gives some certainty that
trade will continue, albeit with higher costs.
As a result, the bank's benchmark deposit rate is expected to remain at
2%. The rate influences borrowing costs throughout the economy.
The ECB raised rates sharply to combat a burst of inflation in 2021-23,
and has since lowered them as inflation came back under control and
concerns grew about growth. Higher rates fight inflation but can slow
growth, while lower rates can stimulate economic activity by making
borrowing cheaper for purchases.
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The Euro sculpture stands in front of the former headquarters of the
European Central Bank (ECB) in Frankfurt, Germany, May 23, 2023. (AP
Photo/Michael Probst, File)
 Eurozone inflation was 2.1% in
August, roughly in line with the bank’s target of 2%. With growth
holding up, that means there’s no great pressure to move rates
Thursday. Analysts think another cut is possible in coming months.
France's fiscal trouble presents a challenge for Lagarde's
communication at her post-decision news conference. The French
government's bond-market borrowing costs have risen somewhat due to
the inability of a divided parliament to tackle the large deficit,
which was 5.8% of GDP last year. In case of a full-blown market
panic that sends rates higher, the ECB could intervene to purchase
French bonds and drive down borrowing costs. But that's only
possible for countries that are obeying the EU's rules on limiting
debt or are moving to comply, which France at this point is not.
“Lagarde will have to mince her words carefully this Thursday,
neither suggesting that the ECB may eventually bail out an
unrepentant fiscal sinner nor taking such a harsh line as to
unsettle markets that still give France the benefit of the doubt,"
said Holger Schmieding, chief economist at Berenberg bank.
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