European Daily ECB—Has R Risen Further

Economics Research 8 September 2026 | 8:00PM BST

European Daily: ECB—Has R* Risen Further?

n ECB officials have suggested that the equilibrium policy rate (or r*) has risen Sven Jari Stehn | further over the last couple of years, with the upper end of the range of the Goldman Sachs International

nominal neutral rate drifting up from 2.25% to 2.5%. We thus take stock of what Alexandre Stott | we have learnt about r* during this time. Goldman Sachs Bank Europe SE - Paris Branch n The Euro area economy has looked more resilient to higher policy rates than anticipated, supporting the notion of a higher equilibrium rate. Moreover, bank lending growth remains robust despite this year’s hike. Also, the global backdrop looks supportive of higher rates, including higher global equity prices and an uptrend in short-term rates. n Consistent with this, estimates of r* have generally risen. The average of three model estimates we track has increased by 19bp since late 2023, while long-run real rate forecasts were revised up by 7bp and forward rates increased by 60bp over the same period. n The evidence thus supports the notion that the equilibrium rate has continued to edge up. This points to a low hurdle for the ECB to hike the policy rate somewhat beyond our current 2.5% terminal rate forecast and increases the likelihood that the ECB can sustain policy rates thereafter at a slightly higher level than our current 2% long-run forecast.

The equilibrium policy rate—the rate at which the economy is in balance with inflation at target, often called r*—is back in focus, as some ECB officials have argued that monetary policy should turn mildly restrictive. The equilibrium rate is unobserved and very difficult to measure, but potentially an important input into monetary policymaking.

The ECB staff estimated in early 2024 that the equilibrium rate had risen since the pre-Covid period, with the nominal neutral rate rising into a 1.75-2.25% range. ECB officials have recently suggested that the upper end of this range might have drifted up to 2.5%, with some Council members suggesting that r* could be even higher than that.

We last took stock of r* in late 2023, arguing that several structural factors— including higher public debt, a lower sensitivity of sovereign spreads to the policy rate and global structural shifts—had pushed up the nominal equilibrium rate in the

Investors should consider this report as only a single factor in making their investment decision. For Reg AC certification and other important disclosures, see the Disclosure Appendix, or go to

Euro area into a 2-2.5% range.

Today, we document what we have learnt about r* since then.

Taking Stock First, the Euro area economy looks more resilient to the current level of the policy rate than anticipated. Growth has run above our 1% estimate of potential growth for two consecutive years, and the unemployment rate remains near historical lows. Our statistical model of the Euro area’s unobservable variables—which estimates r* on the basis of the economy’s performance—therefore continues to suggest that today’s policy rate is not particularly restrictive. The model points to a nominal r* estimate of 2.7%, with the range of plausible alternatives spanning from 1.7% to 3.2% (Exhibit 1).

Exhibit 1: Growth is Holding Up Better Despite Higher Rates, Pointing to a Higher R*

The realised policy rate includes the widely-anticipated 25bp hike on September 10, 2026.

Source: Goldman Sachs Global Investment Research, Haver Analytics

Second, bank lending growth remains robust despite this year’s hike. Lending to households only slowed briefly in April, and forward-looking indicators—such as the European Commission’s survey on households’ intentions on major purchases—indicate healthy gains ahead (Exhibit 2, left). Firms have likewise continued to report little difficulty in gaining access to financing (Exhibit 2, right). This supports the notion that monetary policy is currently not far away from a neutral setting.