As expected, the European Central Bank kept its three key interest rates unchanged.
Global trade tensions are expected to negatively affect growth in the euro area both this year and in 2026, warned ECB President Christine Lagarde.
As she stressed, the European Union must strengthen the euro area and its economy “in the current geopolitical context.”
However, economic growth is expected to be stronger than in the September projections, driven in particular by domestic demand.
Despite the challenges, growth remains resilient, with consumption and investment strengthening, mainly in the services sector, while industry and construction remain stagnant.
The growth rate was revised upward to 1.4% in 2025, 1.2% in 2026 and 1.4% in 2027, and is expected to remain at 1.4% in 2028.
Despite the easing of trade tensions, the volatile global environment continues to pose a risk to the economy, she stressed.
Government spending on defense should support investment. However, the international economic environment is likely to remain restrictive.
The ECB is ready to adjust its policy if necessary, the ECB president reiterated, noting that the decision on interest rates was unanimous.
We are in a good position, but that does not mean we are standing still, she noted.
Inflation
According to the new projections by Eurosystem experts, headline inflation is expected to average 2.1% in 2025, 1.9% in 2026, 1.8% in 2027 and 2.0% in 2028.
Inflation has been revised upward for 2026, mainly because experts now expect services price inflation to decline at a slower pace, the ECB president explained.
According to Lagarde, underlying investment trends remain consistent with the medium-term target of 2%, while the ECB’s decision boosted the euro, mainly due to the fall in the dollar following consumer price index (CPI) data.
Inflation is expected to decline in the short term due to falling energy prices, but is forecast to return to target in 2028, “amid a strong rise in energy inflation,” partly due to the implementation of the EU emissions trading system.
ECB interest rates unchanged – Eurozone economic performance improves, at 1.4% in 2025
As expected, the European Central Bank kept its three key interest rates unchanged.
Its updated assessment once again confirms that inflation is expected to stabilize at the 2% target over the medium term.
According to the new projections by Eurosystem experts, headline inflation is expected to average 2.1% in 2025, 1.9% in 2026, 1.8% in 2027 and 2.0% in 2028.
As for inflation excluding energy and food, experts forecast an average rate of 2.4% in 2025, 2.2% in 2026, 1.9% in 2027 and 2.0% in 2028.
Inflation has been revised upward for 2026, mainly because experts now expect services price inflation to decline at a slower pace.
Economic growth is expected to be stronger than in the September projections, driven in particular by domestic demand.
The growth rate was revised upward to 1.4% in 2025, 1.2% in 2026 and 1.4% in 2027, and is expected to remain at 1.4% in 2028.
Step-by-step approach
The Governing Council is determined to ensure that inflation stabilizes at its 2% target over the medium term.
It will follow a data-dependent approach and take decisions meeting by meeting to determine the appropriate monetary policy stance.
In particular, the Governing Council’s interest rate decisions will be based on its assessment of the inflation outlook and the risks surrounding it, in light of incoming economic and financial data, as well as the dynamics of underlying inflation and the strength of monetary policy transmission.
The Governing Council is not pre-committing to a specific path for interest rates.
ECB key interest rates
The interest rates on the deposit facility, the main refinancing operations and the marginal lending facility will remain unchanged at 2.00%, 2.15% and 2.40%, respectively.
Asset purchase programme (APP) and pandemic emergency purchase programme (PEPP)
The APP and PEPP portfolios are declining at a measured and predictable pace, as the Eurosystem no longer reinvests principal payments from maturing securities.
The Governing Council stands ready to adjust all of its instruments within its mandate to ensure that inflation stabilizes at its 2% target over the medium term and to safeguard the smooth functioning of monetary policy transmission. In addition, the Transmission Protection Instrument (TPI) is available to counter unwarranted, disorderly market dynamics that pose a serious threat to the transmission of monetary policy across all euro area countries, thereby enabling the Governing Council to more effectively fulfill its price stability mandate.
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