Frankfurt (Germany) (AFP) – The European Central Bank held interest rates steady Thursday for its fourth meeting in a row and raised growth forecasts for this year and next. Following a year-long series of cuts, the central bank for the 20 countries that use the euro has now kept its key deposit rate on hold at two percent since July, in contrast to the US Fed and Bank of England, which have recently cut rates in response to signs of cooling economies. Eurozone inflation has settled around the central bank’s two-percent target in recent months, and Europe has weathered US President Donald Trump’s tariff onslaught better than initially feared, meaning there was little pressure for rates to move imminently.
“There won’t be a big surprise under the ECB Christmas tree,” Berenberg bank economist Felix Schmidt had told AFP ahead of the meeting. “Inflation is under control, growth is okay.” With the hold confirmed, investors will be paying close attention to ECB President Christine Lagarde’s press conference from 1345 GMT for any hints on the path forward after Governing Council members gave conflicting signals. Isabel Schnabel—widely considered a hawk who is particularly wary of inflation—fuelled expectations of possible rate rises down the line earlier this month after telling Bloomberg she was “rather comfortable” seeing traders pencil in hikes.
But others, including Finland’s Olli Rehn and France’s Francois Villeroy de Galhau, emphasised just how uncertain the inflation outlook was. “The name of the game for our future meetings remains full optionality,” Villeroy said at a Bank of France speech earlier this month. “We don’t exclude any policy action.” Lagarde herself told the European Parliament in December that she saw “two-sided” risks regarding inflation, adding that uncertainty “was higher than usual owing to volatile global trade policies.”
While a stronger euro, cheaper energy, and slowing wage growth would all be expected to hold inflation down, a resilient eurozone economy combined with the German government’s spending bonanza coming online could see growth and inflation pick up pace. The ECB bumped up its eurozone growth forecasts for this year and next in new projections released alongside the rate decision but said it expected inflation to settle around its target in the medium term.
Ahead of the meeting, Capital Economics analyst Andrew Kenningham told AFP that investors would be “looking for any further hints that policymakers are getting more optimistic about the outlook,” though he added that he thought the economy remained fundamentally weak. “We think the ECB is more likely to cut rates than to hike next year,” he said.
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