Aberdeen: Wording of ECB decision is important

Aberdeen: Wording of ECB decision is important

October 28, 2025

ECB

Felix Feather, Economist at Aberdeen, looks ahead to Thursday's ECB meeting. He pays particular attention to the wording used to explain the interest rate decision, as this can give an indication of which direction it will take next time.

'The Governing Council of the ECB will almost certainly opt to keep rates on hold when it meets on Thursday. With the rate decision all-but a done deal, attention will turn to the framing of the decision, in particular any hints around where policy might go next.

Markets pricing suggests the ECB will be on hold at 2% for the foreseeable, and we agree. Lagarde will probably describe policy as “in a good place” to hint that the General Council also does not see a pressing case to change policy settings.

She will also probably face a few uncomfortable questions on the ECB’s balance sheet policy, given the Fed is likely to announce on Wednesday that its QT policy will be wound up. The US’ inflation rate is higher than the Eurozone’s, and its policy rate remains in restrictive territory. So it is arguably surprising to see the ECB keep this measure – which pushes up on long-term rates – longer than the Fed.

But the Fed’s move, if it materialises, will be motivated by US-specific concerns over the functioning of US funding markets rather than macroeconomic fundamentals. And the 2024 change to the ECB’s operating framework tasks the bank with providing liquidity through its main refinancing facility, rather than previously accreted APP & PEPP asset purchases. So passive QT is likely to continue into 2026, even with policy set neutrally otherwise.'

Related posts