By Ed Frankl

The European Central Bank is expected to leave its key interest rate unchanged for a third straight meeting later this week, and investors will be looking for hints as to whether the series of cuts that began last year is over.

ECB President Christine Lagarde has since the summer said the central bank is in "a good place," since the bank has tamed the upsurge in inflation that led price rises to peak at 10% in 2022.

The bank last cut its deposit rate in June to 2%, having gradually dialed back borrowing costs from 4% in the spring of 2024.

Annual inflation has been close to the 2.0% target for months, climbing slightly to 2.2% in September. ECB staff said last month that they expect inflation to average below 2% until 2027. Unemployment in the eurozone also reached a record low.

Lagarde is likely to repeat that monetary policy is in a "good place" at the meeting next week, and could suggest that the next move in interest rates is just as likely to be upward as downward, Jack Allen-Reynolds, economist at Capital Economics, said in a note to clients.

"Given that investors think cuts are more likely than hikes, this messaging might be seen as slightly hawkish," he noted.

Some investors still expect the ECB to cut its key rate in December if there are signs that the economy is slow to recover from the impact of higher U.S. tariffs.

Figures to be released before the ECB decision are expected to show that economic growth in the third quarter was relatively flat. That marks a slowdown from the strong pace at the start of this year, when exports to get ahead of U.S. tariffs drove gross domestic product higher.

However, some positive signals from business surveys last week could indicate momentum is growing. The German government continues to ready new fiscal stimulus, though this won't spur economic activity for some months, and the European Union has decided on higher defense spending as the U.S. indicates it might step back from military support for Ukraine.

Martin Kocher, the new Austrian central-bank governor who has been in the role since September, argued earlier this month that rate setters shouldn't be too influenced by individual data points.

"There is a good argument to be made for not adjusting policy rates, for not trying to over-enginner what we are doing as long as we are close to the 2%, as long as there are no shocks from the outside that might lead us to other conclusions," he said.

Those shocks to the ECB's "good place" could be continued political instability in France, the eurozone's second-largest economy, the still-unclear impact of U.S. tariffs, and a stronger euro against the dollar, which could lead inflation upward.

An escalation of trade tensions between the U.S. and China could also risk disruption to global supply chains which could force prices higher.

Write to Ed Frankl at edward.frankl@wsj.com

(END) Dow Jones Newswires

October 27, 2025 04:00 ET (08:00 GMT)

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