The European Central Bank (ECB) confirmed today its decision to maintain the key interest rate at 2.0 percent, extending its pause on further hikes. This decision, announced following a Governing Council meeting in Frankfurt, leaves the deposit facility rate, the main refinancing operations rate and the marginal lending facility rate unchanged at 2.00 percent, 2.15 percent and 2.40 percent respectively.
The ECB cited a continued expectation that inflation will stabilize at its medium-term target of 2.0 percent as justification for the decision. Eurosystem experts’ recent projections indicate average overall inflation of 2.1 percent for 2025, easing to 1.9 percent in 2026, 1.8 percent in 2027 and 2.0 percent in 2028. Core inflation (excluding energy and food) is projected at 2.4 percent for 2025, 2.2 percent for 2026, 1.9 percent for 2027 and 2.0 percent for 2028. Notably, the inflation forecast for 2026 has been revised upwards, primarily due to expectations of a slower decline in service price inflation.
Economic growth forecasts have also been upwardly revised, with the ECB now projecting growth of 1.4 percent for 2025, 1.2 percent for 2026 and 1.4 percent for 2027, fuelled predominantly by domestic demand. This represents a shift from previous projections, raising questions about the ECB’s assessment of the broader economic landscape and the potential for inflationary pressures stemming from increased activity.
While the Governing Council reaffirmed its commitment to bringing inflation back to its target, the lack of a clear timeline for interest rate cuts is likely to draw criticism from those arguing for a more aggressive loosening of monetary policy. The ECB emphasized that future monetary policy decisions will be data-dependent and assessed on a meeting-by-meeting basis, explicitly rejecting pre-commitment to a specific interest rate path. This cautious approach reflects a complex balancing act – acknowledging strengthened growth indicators while remaining vigilant about persistent inflationary risks, particularly within the services sector. Analysts suggest that while the immediate pressure for rate cuts has lessened, the ECB faces ongoing scrutiny to ensure its policies adequately address both inflationary and growth concerns, particularly given the uneven impact on member states within the Eurozone. The market’s interpretation of this data-dependent approach remains key and will likely influence future expectations.