ECB Maintains Key Rates Amid Stable Economic Outlook
The European Central Bank (ECB) announced today, Thursday, December 18, 2025, its decision to keep its key interest rates unchanged for the fourth consecutive meeting. The benchmark deposit rate will remain at 2%, with the main refinancing operations rate at 2.15% and the marginal lending facility rate at 2.40%. This move was widely anticipated by economists and signals the ECB's continued cautious approach to monetary policy in the Eurozone.
Rationale Behind the Decision: Inflation and Growth
The decision to hold rates steady comes as the ECB balances its primary objective of maintaining price stability with supporting economic momentum. Inflation in the euro area has been hovering close to the ECB's medium-term target of 2%. The annual euro area inflation rate stood at 2.1% in November, stable compared to October, slightly above the target. Core inflation, which excludes volatile energy and food prices, rose by 2.4% year over year in November.
ECB staff have revised their economic growth projections for the Eurozone, indicating a more optimistic outlook. Growth is now expected to be 1.4% in 2025, 1.2% in 2026, 1.4% in 2027, and 1.4% in 2028. This improved forecast is primarily driven by resilient domestic demand. The ECB's staff projections for headline inflation are 2.1% in 2025, 1.9% in 2026, 1.8% in 2027, and 2.0% in 2028. The slight upward revision for 2026 is attributed to expectations of services inflation declining more slowly.
Context of the Rate-Cutting Cycle and Future Outlook
The current 2% deposit rate is the result of a rate-cutting cycle that commenced in June 2024, which saw the ECB reduce its policy rate from 4% to 2% over the preceding year. This latest decision marks a pause in that easing cycle. The ECB's Governing Council reiterated its commitment to a data-dependent and meeting-by-meeting approach, emphasizing that future decisions will be guided by incoming economic data.
President of the ECB, Christine Lagarde, affirmed that the Eurozone economy has shown 'resilience' and that domestic demand is poised to be the 'main engine of growth' in the coming years. She also indicated that the ECB is in no rush to alter rates, describing the current monetary policy stance as being 'in a good place' or a 'neutral monetary policy stance.' While the option to cut rates remains on the table, market participants are increasingly pricing in a higher probability of a rate hike in 2026 or 2027, as central banks globally navigate varying economic conditions.
Conclusion
The ECB's decision to hold interest rates steady reflects a period of careful assessment, as the central bank monitors the trajectory of inflation and economic growth across the Eurozone. With inflation nearing its target and economic resilience noted, the ECB maintains a flexible, data-driven approach to ensure long-term price stability.
7 Comments
Raphael
While holding rates provides much-needed stability given inflation is close to target, I wonder if this pause is long enough to fully assess the impact on smaller businesses and consumer spending. It feels like a delicate balance they're trying to strike.
anubis
It's good to see the ECB taking a data-dependent approach and not rushing decisions. However, the market's expectation of future rate hikes suggests there's still a lot of uncertainty about the long-term trajectory, making planning difficult for investors.
eliphas
Inflation near target, growth stable. Perfect decision.
anubis
They're always behind the curve, either too slow to cut or too slow to hike.
eliphas
Still too high! We need more cuts for real growth.
paracelsus
A steady rate provides a sense of calm, which is positive for market confidence. But relying solely on domestic demand for growth might be risky if global economic conditions worsen, and the ECB might be too slow to react if that happens.
Bella Ciao
2% is still a burden for many businesses and borrowers. Not enough relief.