Frankfurt: The European Central Bank (ECB) is not anticipated to alter its policy rates in the near future as the strengthening euro poses new challenges for the bank's monetary policy decisions.
According to Anadolu Agency, the ECB is widely expected to keep its rates unchanged at its upcoming February meeting and continue this stance for an extended period. Economic data for the region indicates steady activity, but the rise of the euro, with its deflationary impact, could influence future decisions.
Peter Vanden Houte, chief economist at ING Group, shared insights with Anadolu that the eurozone grew by 0.3% in the last quarter of 2025, and the EU Commission's economic confidence index surpassed expectations in January. He emphasized that the current economic data supports maintaining stable interest rates, with inflation hovering around 2%, reassuring the ECB of its current monetary policy position.
Houte highlighted that recent developments in the exchange rate are making the ECB's position less comfortable. The weakening US dollar and the strengthening euro are causing unease, with French central bank governor Francois Villeroy de Galhau suggesting that the euro's strength could guide future policy decisions.
Houte further explained that an ECB risk scenario published in December indicated that a euro appreciation to 1.25 against the dollar could reduce inflation by 0.2 percentage points. However, if the dollar stabilizes around 1.20, the ECB is likely to maintain current interest rates.
Marco Wagner, senior economist at Commerzbank, anticipates that the ECB's policy meeting will be uneventful, with no rate changes expected. He noted that the euro/US dollar exchange rate is projected to average 1.16 and that sustained euro strength could gradually impact the ECB's economic and inflation forecasts.
Bas van Geffen, senior macro strategist at Rabobank, expects the ECB to hold rates until 2026, suggesting that any verbal interventions regarding the euro's gains would not necessarily lead to a rate cut unless the currency appreciates significantly further.
Alain Durre, head of Europe macro research at Natixis, believes that the ECB will keep rates stable, requiring a combination of a strong euro and significantly lower energy prices for any rate reduction. He emphasized the more lasting disinflationary impact of euro appreciation compared to the inflationary pressure from volatile energy prices.
Jan-Paul van de Kerke, senior economist at ABN AMRO, attributed the euro's recent rise primarily to the weakening US dollar. He noted that while the ECB will monitor currency movements affecting growth and inflation, it is unlikely to target the exchange rate directly, maintaining a stable monetary policy for the foreseeable future.