ECB Insight: Knot Adds to Signs ECB May Delay Further Easing

27 June 2025

By David Barwick – FRANKFURT (Econostream) – Perhaps they merely confirm our prior thinking, but we found today’s comments by outgoing ECB Governing Council member and De Nederlandsche Bank Governor Klaas Knot particularly worth highlighting.

Another 25bp cut this year by the ECB was ‘difficult for me to exclude’, he said in an interview with the FT, but subject to question in view of an uncertain outlook. ‘It may well be that the ECB has to hold rates for quite some time to come as long as you don’t know which way these shocks will actually play out on the medium-term outlook’, he said.

This fits our thinking extremely well. A move in July is so unlikely as to barely warrant discussion, absent some unforeseeable development.

As for September, we can’t escape the impression that prospects for further easing then have grown murkier over the last three weeks. Of course, no one has taken it off the table, and doing so this far ahead wouldn’t be consistent with the Council’s approach or the uncertain environment.

But our overall impression when we consider comments by ECB President Christine Lagarde, Chief Economist Philip Lane and now Knot as well is that the ECB is quite firmly on hold for the moment, and that another cut may be appropriate at a later, as yet undefined date — possibly September, but not necessarily.

What’s missing, compared to previous cuts in this cycle, are the expressions of relatively broad support that would justify regarding a September cut as more than just reasonably possible.

Naturally, some policymakers have made no secret of their willingness. Banque de France Governor François Villeroy de Galhau and Banco de Portugal Governor Mário Centeno are among these, and while Vice President Luis de Guindos expresses himself with the restraint befitting his institutional standing, he too has sounded repeatedly like he would be amenable to more easing.

There are others of course in this camp of those worried that the ECB’s ‘good place’ narrative, which the hawks are visibly fond of (Knot also invoked the idea), will become uncomfortably entrenched for them, and they wish to ensure that the perception that the ECB is finished doesn’t take hold too firmly.

But there are others who are very clearly in no hurry at all. National Bank of Slovakia Governor Peter Kažimír typified the sentiment of this group when he declared on Tuesday that he would want a lot more clarity before considering another rate move.

Bundesbank President Joachim Nagel, who went along with all cuts to date, has been sounding hawkish lately, suggesting that the ECB could now take its time, pronouncing policy to be in neutral territory and dismissing fears of a sustained undershooting of inflation.

More tellingly, some policymakers who were previously enthusiastic about every cut are now taking a more balanced view. Bank of Finland Governor Olli Rehn exemplifies this; at the rhetorical forefront of the easing process, more recently he has expressed confidence in the ECB’s medium-term outlook and called for monitoring risks in both directions.

Similarly, Bank of Lithuania Governor Gediminas Šimkus, decidedly dovish up to now, has since called policy neutral, highlighted the importance of a pause and urged keeping hawkish and dovish options open.

And Latvijas Banka Governor Mārtiņš Kazāks, who in an interview with Econostream the day after the last rate cut called it ‘quite likely’ that ‘some further cuts for fine tuning’ would be needed, has grown more tight-lipped since.

We therefore think it appropriate to view a September cut — never a certainty — with less confidence than may have seemed justified three weeks ago.

That said, no one is talking about a hike, and even those Council members not as keen to loosen policy further recognise that the ECB may still cut. But the will to do so seems diminished, increasing the likelihood that even if a cut does come, it may be delayed.

This in effect is what Knot seems to us to have expressed.