SNAPSHOT2 min read

End of the road for ECB rate rises?

The European Central Bank (ECB) has kept its key interest rates unchanged for the first time since June 2022 – potentially marking the end of its rate hiking journey.



Azad Zangana
Senior European Economist and Strategist

In response to some of the highest inflation rates since the 1970s, the ECB‘s main refinancing rate has risen from zero in June 2022 to 4.5% in September 2023, while the deposit rate rose from -0.50% to 4%.

The decision not to tighten policy further was in response to a weakening eurozone economy, as manufacturers struggle with weakening domestic and external demand, while services companies are also reporting slower activity.

The inflation rate has also moderated substantially in recent months, falling from a peak of 10.6% y/y in October 2022 to 4.3% y/y in the latest data release in September. Much of this fall was caused by the impact of higher energy prices last year dropping out of the annual comparison of prices. Inflation is expected to fall further, but ECB president Christine Lagarde suggests that risks were skewed towards higher inflation.

Lagarde said: “Inflation is still expected to stay too high for too long, and domestic price pressures remain strong.”

But in reference to the decision to hold, she said: “We are determined to ensure that inflation returns to our 2% medium-term target in a timely manner. Based on our current assessment, we consider that rates are at levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to our target.”

Although there was no indication that further rate rises were off the table, the language used suggests that the ECB would need to see a significant deterioration in the inflation outlook. Indeed, the decision to keep policy on hold was largely expected by financial markets.

Looking ahead, the next policy move is likely to revolve around the ECB’s balance sheet, and the pace of the unwind of support. Upward pressure on bond yields of late were blamed on “external factors”, but it is clear that the ECB still has one eye on the ability of countries, particularly Italy, to fund itself in an affordable and orderly manner.

As for interest rates, the next move is likely to be a cut, probably in 2024. How soon and by how much in the coming year will depend on the progress made to lower inflation back to target.

Important Information: This communication is marketing material. The views and opinions contained herein are those of the author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results. The value of an investment can go down as well as up and is not guaranteed. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Schroders has to its customers under any regulatory system. Regions/ sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The opinions in this material include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change. The content is issued by Schroder Investment Management Limited, 1 London Wall Place, London EC2Y 5AU. Registered No. 1893220 England. Authorised and regulated by the Financial Conduct Authority.


Azad Zangana
Senior European Economist and Strategist


Follow us

To facilitate legibility, the language forms male, female and diverse (m/f/d) are not used simultaneously in this text. All references to persons apply equally to all genders.

Schroder Investment Management (Switzerland) AG (herein after called "SIMSAG") webpages are aimed exclusively at qualified investors with their registered office or residence in Switzerland. The SIMSAG webpage also contains information about collective investment schemes which are not approved for distribution to non-qualified investors in Switzerland.

For illustrative purposes only and does not constitute a recommendation to invest in the above-mentioned security / sector / country.