ECB Keeps Rates Steady at 2% as Eurozone Economy Shows Resilience
The European Central Bank (ECB) kept interest rates unchanged at 2% for the third consecutive meeting on Thursday, reaffirming that its monetary policy remains in a “good place” as economic risks ease and the eurozone economy continues to hold firm despite global uncertainty.
The ECB previously cut rates by a combined 2 percentage points in the year leading up to June but has since opted to maintain its stance. ECB President Christine Lagarde said during Thursday’s press conference that the bank is in no rush to alter policy, reflecting confidence in the region’s economic stability.
Lagarde credited several recent global developments with improving the economic outlook — including the U.S.-EU trade deal, the Gaza ceasefire, and the Trump–Xi Jinping agreement to reduce tariffs — all of which she said have helped mitigate downside risks to growth.
“From a monetary policy point of view, we are in a good place,” Lagarde said. “Is it a fixed good place? No. But we will do whatever is needed to make sure that we stay there.”
While growth in the 20-member euro area remains modest, Lagarde highlighted the 0.2% GDP expansion in the third quarter as a positive surprise, beating both market and ECB expectations. However, she noted that inflation risks remain mixed, with price growth expected to stay below the ECB’s 2% target next year.
Investors Expect Rates to Stay Flat for Longer
Financial markets largely maintained their outlook following Lagarde’s comments, still pricing in a 40–50% chance of one final rate cut by mid-2026.
Economist Jan von Gerich of Nordea said the ECB is unlikely to adjust rates anytime soon, noting that Thursday’s communication reinforces a stable policy path. However, upcoming changes to the EU’s ETS2 emissions trading system could influence inflation trends.
Lagarde explained that if the ETS2 rollout is extended over two years, the inflationary impact could be softened — potentially lowering inflation below 2% by 2027, which might justify a small rate reduction in the future.
Data Shows a Mixed but Improving Picture
Recent data has painted a mixed picture for the eurozone economy. GDP figures beat forecasts, with Spain and France outperforming expectations in the third quarter. Early indicators for the fourth quarter also suggest growth momentum could accelerate.
A recent Purchasing Managers’ Index (PMI) report showed rising business activity and improving sentiment in Germany, while optimism across the bloc has grown. However, industrial sectors continue to struggle, and exports to the U.S. have declined, with concerns that Chinese firms are redirecting excess supply into European markets.
Despite these challenges, most economists expect ECB rates to remain unchanged. Commerzbank’s Jörg Krämer said the 2% deposit rate is likely to hold steady, emphasizing that “the hurdle for rate hikes is usually very high for the ECB.”
