Photo: Wikipedia
The European Central Bank is set to keep interest rates unchanged, reinforcing confidence that the euro zone economy is resilient and that inflation will remain close to target over the medium term. The deposit rate is expected to stay at 2%, marking the fourth consecutive meeting without a policy move following the end of the easing cycle.
Why policymakers are standing still
According to a Bloomberg survey, all economists expect the ECB to hold rates steady, with a growing majority now seeing the next move as more likely to be a hike rather than a cut. This shift reflects policymakers’ confidence that the 20-nation euro-area economy can withstand external headwinds, including higher US tariffs, without additional monetary support.
Executive Board member Isabel Schnabel has reinforced this view, telling Bloomberg she is comfortable with market expectations that the next rate move could be upward.
Inflation seen close to target
ECB officials increasingly believe inflation will stay close to the 2% goal over the medium term. Most policymakers describe borrowing costs as being “in a good place” and show little appetite to add to the eight quarter-point cuts that reduced the deposit rate from 4% to its current level.
Even more dovish voices, such as Lithuania’s central bank governor Gediminas Simkus, now see no need for further easing in coming meetings. At the same time, France’s Francois Villeroy de Galhau has stressed the importance of remaining agile and open-minded about future decisions.
Economic outlook improves
New staff projections are expected to show firmer growth across the euro zone. Third-quarter GDP exceeded the ECB’s expectations and has held up despite global trade pressures. Analysts anticipate that risks to the outlook will be described as broadly balanced.
Inflation forecasts are likely to see only modest revisions. Nomura expects consumer price growth to average just 1.6% in 2026 and 2027, partly reflecting a delay in the European Union’s emissions-trading system. Projections will also include 2028 for the first time, with inflation expected to return to around 2%, supporting the ECB’s view that temporary deviations can be tolerated.
A delicate communication challenge
President Christine Lagarde is widely expected to reiterate that the ECB is not committing to a predetermined rate path and will continue to decide policy meeting by meeting based on incoming data. Economists will watch closely to see whether she addresses recent market tightening, which some analysts equate to an effective 25-basis-point rate hike.
Any lack of nuance in her remarks could prompt markets to reassess how the ECB responds to shifts in financial conditions.
Leadership changes in the background
Beyond policy, attention is also turning to changes within the ECB’s Executive Board, as the search begins for a successor to Vice President Luis de Guindos. Several national central bank governors have emerged as potential candidates, while speculation is also growing about who might succeed Lagarde when her term ends in October 2027.
As International Investment experts report, the ECB’s decision to hold rates signals a move toward managing stability rather than stimulating growth. For investors, this implies a more predictable interest-rate environment, though future policy shifts will hinge on whether the euro zone can sustain growth without reigniting inflationary pressures.