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Essentials of Monetary Policy

The European Central Bank at Neutral

June 5, 2025
Mirza Shaheryar Baig
Foreign Exchange Strategist

According to the European Central Bank (ECB)

  • The ECB lowered its policy interest rate from 2.25% to 2.00%, in line with expectations.
  • Overall, the ECB struck a slightly dovish tone, as they shaved off 0.3% from the 2025 and 2026 headline CPI projections.

Implications

Headline CPI projection was revised down: 2025 to 2% from 2.3% and 2026 to 1.6% from 1.9%. The reason for the revision is oil prices and strong euro. Core inflation forecasts are unchanged from March.

 

The policy rate is now at 2.00%, which is the mid-point of ECB’s estimated neutral range. The July meeting was priced for 5bps only before the meeting but now is priced 15bps after the meeting. This will fluctuate more today during the press conference.

 

We expect at least one more rate cut this year but expect ECB to pause in July.

2025 Schedule of Central Bank Meetings

NOTE TO READERS: The letters k, M and B are used in texts, graphs and tables to refer to thousands, millions and billions respectively. IMPORTANT: This document is based on public information and may under no circumstances be used or construed as a commitment by Desjardins Group. While the information provided has been determined on the basis of data obtained from sources that are deemed to be reliable, Desjardins Group in no way warrants that the information is accurate or complete. The document is provided solely for information purposes and does not constitute an offer or solicitation for purchase or sale. Desjardins Group takes no responsibility for the consequences of any decision whatsoever made on the basis of the data contained herein and does not hereby undertake to provide any advice, notably in the area of investment services. Data on prices and margins is provided for information purposes and may be modified at any time based on such factors as market conditions. The past performances and projections expressed herein are no guarantee of future performance. Unless otherwise indicated, the opinions and forecasts contained herein are those of the document’s authors and do not represent the opinions of any other person or the official position of Desjardins Group.