ECB’s Interest Rate Strategy: Easing or Pausing?

The European Central Bank is at a crossroads in 2025. After a series of rate hikes in 2023–2024 to battle inflation, the ECB has paused its tightening policy. Now markets wonder: is rate easing next?

Inflation has dipped under 2.5%, and real wage growth is positive in several eurozone countries. But ECB officials remain wary of global instability, particularly the U.S. monetary stance and energy supply chain shocks.

Bond yields in Southern Europe have slightly compressed, reflecting investor expectations of lower rates. The euro has also stabilized against the dollar after a volatile start to the year.

Experts predict a mild cut of 25 basis points in Q3 2025, contingent on inflation data and economic output in Germany and France. ECB’s tone remains cautious, with strong emphasis on being data-dependent.

For consumers and businesses, this means credit conditions may gradually ease, boosting mortgage lending and SME financing in late 2025.