EU interest rate

a look at the ECB deposit facility

at what level are EU interest rates?

ECB interest rate:

• the deposit facility rate is currently set at 2.00%
• it has been confirmed at this level since the ECB meeting that took place on 06-2025
• it is at the lowest level observed in 3 years

IntroThe Governing Council of the European Central Bank (ECB) sets three different key interest rates for the euro area: (1) the deposit facility rate (the mainstream rate, used to drive monetary policy) that is used by banks to make overnight deposits with the ECB and applied to household and business borrowers on the street; (2) the main refinancing operations (set above the deposit facility), used by banks to borrow funds from the ECB; (3) the marginal lending facility (set above the main refinancing ops rate), which offers overnight credit to banks.

Chart guideIn this chart above we look at the currently applied deposit facility, which - as anticipated above - is the main interest rate in EU, set by the ECB every six weeks.

Rates: a key monetary policy toolThe process through which monetary policy decisions affect the overall economy, and price levels in particular, is called the monetary policy transmission mechanism. This mechanism comprises a chain of effects whereby monetary policy decisions are ultimately transmitted to price levels. The central bank plays a pivotal role in this process, since it is the sole issuer of banknotes and bank reserves, which are the two components of the monetary base. Arguably the most important stage in the monetary policy transmission mechanism is a change in policy interest rates.

Interest rates influence both economic activity and prices (= inflation). Lower interest rates stimulate both spending and borrowing (and thus long-term investing in productive activities), supporting economic growth and eventually rising consumer prices (=higher inflation). Higher interest rates make borrowing more costly and savings more appealing, so spending fades and prices tend to cool-down (=lower inflation).

future EU interest rate levels

market expectations via EURIBOR futures

where do investors see EU rates go next?

Cumulative rate changes expected for the next 6 months:

• 50 bps

Detailed expectations for the upcoming ECB meetings:

• Apr26: a 25bps hike is expected with 68% probability
• May26: a 25bps hike is fully priced-in, while the probability of a 50bps hike has reached 36%
• Jun26: a 25bps hike is expected with 92% probability
• Jul26: a 25bps hike is fully priced-in, while the probability of a 50bps hike has reached 32%
• Aug26: a 25bps hike is expected with 60% probability
• Sep26: a 25bps hike is expected with 76% probability

IntroEURIBOR (Euro Interbank Offered Rate) futures are primarily used for hedging and speculating on changes in short-term interest rates within the Eurozone. They allow market participants to manage interest rate risk, protect themselves from potential losses due to interest rate fluctuations, or speculate on future interest rate movements.

Chart guideIn the chart above we show the (mathematically obtained) curve of expected interest rates, daily priced according to expectations and assumptions of EURIBOR futures' investors. We also show where potential rate cuts or hikes are expected by investors in which future month.

Let's remember that: (1) future interest rates here may be expected to go lower or higher depending on investors' current preferences; (2) future interest rates may change substantially from one day to another, subject to market movements;

Chart useDespite being based on pure expectations and not hard truths, this curve in the chart above is probably the most respected bellweather available to forecast the direction of future interest rates in Europe. Investors expectations are derived from the professional observation of current macroeconomic events and official data, and moving asset prices in various different markets.