^{Copyright Michael Probst/Copyright 2024 The AP. All rights reserved}

The European Central Bank (ECB) has signaled a definitive end to its latest monetary tightening cycle, following a dramatic fall in inflation from double digits to within the ECB’s target range. According to Chief Economist Philip Lane, the institution believes the core phase of inflation control has now concluded.

ECB Declares Rate Cycle Complete

Speaking at the ECB’s annual policy forum in Sintra, Portugal, Lane told CNBC, “We believe the last rate hike cycle has run its course. We've brought inflation down from a peak of 10% back to 2% — that part of the process is over.”

This declaration comes after more than a year of aggressive interest rate hikes aimed at taming soaring prices across the eurozone. At its peak, the ECB’s main interest rate reached 4%, but has since been lowered to 2%. Current market pricing suggests another 25-basis-point cut could occur before the end of 2025, potentially bringing the rate down to 1.75%.

Vigilance Over Complacency

Despite reaching its inflation target — with euro area inflation hitting 1.9% in May — the ECB insists it will remain vigilant. Lane emphasized that while the worst may be over, the central bank must be prepared to act again if inflationary pressures return.

“We will remain data-dependent,” Lane said. “We’re not going to react to every minor fluctuation, but we have to ensure no new inflation trend becomes entrenched.”

Growth Concerns Cloud Outlook

Adding to the tone of cautious optimism, Belgian central bank governor Pierre Wunsch echoed similar sentiments. “There is a broad consensus that inflation is close to target — the job is mostly done,” Wunsch said in a separate CNBC interview.

However, Wunsch pointed to continued weakness in eurozone economic growth. “Europe has been experiencing two years of relatively slow growth,” he noted, adding that any significant rebound could be delayed by geopolitical tensions and ongoing global uncertainties.

He hinted that if the ECB were to make another policy adjustment, it would likely be in the form of a rate cut rather than a hike. “I’m not advocating for it right now, but if there’s a shift, it’s more likely downward.”

ECB to Monitor Industrial Output and Broader Data

Looking ahead, ECB officials are watching key economic indicators — particularly industrial production — for signs of a turnaround. Wunsch suggested that if eurozone output fails to improve, the central bank may need to adopt a slightly more supportive stance.

“We’ll be assessing incoming data to understand whether the recovery is materializing. If not, we may need to be more accommodative,” he said.

Final Thoughts

The ECB’s clear communication that its monetary tightening cycle has ended will bring some relief to borrowers and investors. But with potential global shocks and fragile growth still on the horizon, the central bank’s leadership is maintaining a cautious posture — ready to pivot policy if needed.

For now, the ECB’s battle against inflation appears to have been won — but the war for stable, sustainable growth in the eurozone is far from over.