IMF: ECB should keep interest rates at 2% unless there are new shocks

Alfred Kammer, head of the IMF's European department, said the ECB should keep its deposit rate at its current 2 per cent level unless a new shock materially changes the inflation outlook. The ECB has cut rates by two percentage points since June 2024 and this month signalled it would pause, although financial investors still believe it will cut rates again to 1.75 per cent later this year. "The risk of inflation in the euro area is two-sided," Mr. Kammer said. "That's why we think the ECB should stick with it and not deviate from the 2 per cent deposit rate unless there is a shock that materially changes the inflation outlook." "At the moment we haven't seen such a big change." Part of the reason the IMF differs from the market is that it expects inflation next year to be higher than the ECB expects.