Capital Economics: The European Central Bank will keep interest rates unchanged this year

Macro analyst Andrew Kenningham stated in a report that the European Central Bank is likely to keep interest rates unchanged this year, followed by a rate cut in 2027. With the United States and Iran reaching a temporary ceasefire, energy costs have already declined, and oil prices are expected to fall to $75 per barrel this year. Kenningham said that although short-term inflation forecasts have risen, long-term expectations remain aligned with the central bank’s 2% target. “We are increasingly confident that any second-round effects on wage inflation will be negligible.” Kenningham added that if the ceasefire cannot be maintained and energy prices rebound, rate hikes are still possible. “Policymakers, including European Central Bank Chief Economist Philip Lane, have repeatedly stressed that they are prepared to raise rates further.”