The European Central Bank (ECB) on Thursday kept its benchmark interest rate unchanged at 2% for the third consecutive meeting, signaling confidence that monetary policy is appropriately positioned as the eurozone economy steadies despite months of global volatility.
ECB President Christine Lagarde, speaking after the meeting in Frankfurt, described the current stance as being “in a good place,” a phrase she repeated to underscore the bank’s cautious optimism.
“Is it a fixed good place? No. But we will do whatever is needed to make sure that we stay in a good place,” she told reporters.
The decision comes after a series of 2 percentage point cuts earlier in the year that helped cool inflation while sustaining growth across the 20-nation bloc. The ECB’s wait-and-see approach now appears to reflect a more balanced outlook, as recent data point to moderate but steady expansion. The eurozone grew 0.2% in the third quarter, outperforming both ECB and market expectations.
According to Reuters, Lagarde credited several recent geopolitical developments for easing downside risks, including Europe’s new trade agreement with the United States, a ceasefire in Gaza, and a tariff-reduction deal reached Thursday between U.S. President Donald Trump and China’s Xi Jinping.
“These factors have all mitigated risks to growth,” she said, suggesting that global headwinds may be easing faster than many analysts anticipated.
Still, concerns remain on the inflation front. While growth has stabilized, the ECB expects inflation to undershoot its 2% target next year, a scenario that has divided policymakers.
“I think on that front, it’s a more balanced picture,” Lagarde acknowledged, noting that while some risks have receded, others persist — particularly those linked to energy and global supply chains.
The bank’s next set of projections, due in December, will include forecasts for 2028 — the first time the horizon will extend that far. According to four ECB sources quoted by Reuters, a continued undershooting of inflation in those long-term estimates could reignite debate about cutting rates before mid-2025. Yet, other officials caution against reading too much into distant forecasts, arguing that modest deviations from target — by as little as 20 or 30 basis points—may be acceptable given historical volatility.
Financial markets remained largely unmoved by Thursday’s decision. Investors still price in a 40% to 50% probability of one final rate cut by the middle of next year, according to data from Reuters.
Jan von Gerich, chief economist at Nordea, said the ECB’s message suggests policymakers are content to hold rates for an extended period.
“We do not expect rate changes from the ECB for a long time, though there are still many risks to this view,” he said. “Today’s message further illustrated that the ECB is nowhere near any rate changes.”
However, factors such as the European Union’s revised ETS2 emissions trading system could subtly influence inflation trends. Lagarde noted that ETS2 might add 0.3 percentage points to inflation in 2027, though the EU is considering phasing its rollout over two years to soften the impact.
Meanwhile, data from across the bloc present a mixed picture. Spain and France both posted stronger-than-expected third-quarter growth, helping lift eurozone GDP above the ECB’s stagnation forecast. Early fourth-quarter indicators also suggest momentum could pick up, supported by improved business sentiment in Germany — Europe’s largest economy — and a rebound in purchasing managers’ indices.
However, the optimism is tempered by sluggish industrial output and a sharp decline in exports to the United States. Some analysts warn that China’s oversupply — driven by weaker U.S. demand — may be flooding European markets, creating a new competitive challenge for local manufacturers.
Philip Lane, the ECB’s Chief Economist, has said that if inflation continues to undershoot, it could strengthen the case for a “slightly lower” policy rate in 2025. Still, many economists believe the central bank will avoid further cuts, barring an abrupt deterioration in growth.
Commerzbank’s Jörg Krämer, in what is seen as the prevailing sentiment, said: “Overall, the scenario of an unchanged deposit rate of 2.0% remains the most likely scenario, as the hurdle for rate hikes is usually very high for the ECB.”
