The ECB's Governing Council pressed pause on policy, keeping its three key rates unchanged at 2.00 percent (deposit), 2.15 percent (refinancing), and 2.40 percent (lending). Inflation, now hovering near the 2 percent medium-term target, remains the anchor for policy strategy. Updated staff projections point to headline inflation averaging 2.1 percent in 2025, easing to 1.7 percent in 2026 before nudging up to 1.9 percent in 2027. Core inflation follows a similar cooling path, reflecting confidence in the disinflation trend.

Growth prospects are modestly brighter in the near term, with the 2025 GDP forecast revised up to 1.2 percent from June's 0.9 percent. However, the outlook dims slightly in 2026 (1.0 percent) before stabilising at 1.3 percent in 2027, highlighting a still-fragile recovery.

The latest indication of the meeting is one of caution without complacency. The Governing Council underscores its data-dependent, meeting-by-meeting approach, refusing to pre-commit to a rate path while keeping all instruments ready. Asset portfolios under APP and PEPP continue to decline, reinforcing the gradual unwinding of crisis-era support.

In essence, today's decision signals stability. Inflation is converging toward the target, growth is improving at the margins, and policy flexibility remains intact to counter risks and preserve monetary transmission across the euro area.

The consensus looks for the ECB to remain on hold, based on the most recent comments from monetary officials. Markets are watching closely how the ECB assesses the economic outlook and inflation prospects in its latest projections, including the prospect of more disinflation. Like the Fed, the ECB is likely to say policy remains data-dependent. Some analysts say the ECB is done with rate cuts in the current cycle.

The European Central Bank (ECB) sets monetary policy for all members of the Eurozone. The highest decision-making body is the Governing Council which comprises the six members of the Executive Board and the 20 presidents of member central banks. Policy meetings take place roughly every six weeks but, due to the sheer number of participants, a rotation system has been introduced so that the total number of votes is capped at twenty-one. The benchmark interest rate is the rate on the main refinancing operations (refi rate) which sits between the marginal lending facility rate and deposit rate. The ECB's primary objective is price stability which since July 2021 is based upon a symmetric 2 percent target for the annual inflation rate.

The European Central Bank determines interest rate policy at their Governing Council meetings. The Council is composed of the six members of the Executive Council and 17 presidents of member central banks (Bank of France, Bundesbank, etc). The Governing Council meets now meets every six weeks. The European Central Bank had an established inflation ceiling of just less than 2 percent which was modified in July 2021 to 2 percent. The ECB's measure of inflation is the harmonized index of consumer prices (HICP). Each member of the Governing Council has one vote and decisions are reached by simple majority. In the event of a tie, the President has the casting vote. Only short-form minutes are released so how individual members voted is not known.

As in the United States, European market participants speculate about the possibility of an interest rate change at these meetings. If the outcome is different from expectations, the impact on European markets can be dramatic and far-reaching. The rate set by the ECB serves as a benchmark for all other interest rates in the Eurozone.

The level of interest rates affects the economy. Higher interest rates tend to slow economic activity; lower interest rates stimulate economic activity. Either way, interest rates influence the sales environment. In the consumer sector, few homes or cars will be purchased when interest rates rise. Furthermore, interest rate costs are a significant factor for many businesses, particularly for companies with high debt loads or who have to finance high inventory levels. This interest cost has a direct impact on corporate profits. The bottom line is that higher interest rates are bearish for the stock market, while lower interest rates are bullish.