ECB Holds Interest Rates Steady as Inflation Outlook Remains Stable

The European Central Bank (ECB) announced today that it will keep its three key interest rates unchanged, citing a broadly stable inflation outlook close to its target.

“Inflation is currently at around the 2 per cent medium-term target and the Governing Council’s assessment of the inflation outlook is broadly unchanged,” the central bank stated.

Updated staff projections released alongside the decision portray an inflation trajectory that mirrors the estimates published in June. According to the ECB, headline inflation is projected to average 2.1 per cent in 2025, followed by 1.7 per cent in 2026 and 1.9 per cent in 2027.

When excluding energy and food prices, the institution expects an average of 2.4 per cent in 2025, 1.9 per cent in 2026 and 1.8 per cent in 2027.

Growth expectations were revised moderately upward for the near term. The ECB now projects economic expansion of 1.2 per cent in 2025, compared with the 0.9 per cent forecast made in June. The growth outlook for 2026 has been adjusted slightly downward to 1.0 per cent, while the projection for 2027 remains at 1.3 per cent.

Reaffirming its core mandate, the Governing Council emphasized that it remains committed to securing price stability. “It will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance,” the statement said. The bank underlined that its rate decisions would continue to hinge on “the assessment of the inflation outlook and the risks surrounding it, taking into account incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission.”

“The Governing Council is not pre-committing to a particular rate path,” it added, underscoring the institution’s flexibility.

As a result, the deposit facility rate remains at 2.00 per cent, the main refinancing operations rate holds at 2.15 per cent, and the marginal lending facility rate stays at 2.40 per cent.

The ECB also confirmed that its asset purchase programme (APP) and pandemic emergency purchase programme (PEPP) portfolios are continuing to decline in an orderly manner, since the Eurosystem is no longer reinvesting principal payments from maturing securities. “The Governing Council stands ready to adjust all of its instruments within its mandate to ensure that inflation stabilises at its 2 per cent target in the medium term and to preserve the smooth functioning of monetary policy transmission,” the statement read.

In addition, the ECB highlighted the availability of its Transmission Protection Instrument, designed to address unwarranted and disorderly market movements that could jeopardize the uniform transmission of monetary policy across euro area countries. “This allows the Governing Council to more effectively deliver on its price stability mandate,” it said.

By fLEXI tEAM