The European Central Bank (ECB) has opted to hold its key interest rates steady, signalling confidence in current inflation trends, which remain close to the 2 percent medium-term target. The decision suggests that recent policy adjustments are still filtering through the economy. Steady growth, a strong labour market and resilient private sector finances are supporting economic stability, despite persistent global uncertainty linked to trade disputes and geopolitical tensions.

The ECB continues to rely on a cautious, data-driven approach, emphasising flexibility rather than committing to a fixed rate path. This stance reflects concerns about underlying inflation dynamics and the need to protect monetary policy transmission across all eurozone members. Maintaining the deposit, refinancing and lending rates at 2.00 percent, 2.15 percent and 2.40 percent respectively provides continuity.

Meanwhile, the gradual reduction of APP and PEPP portfolios signals a controlled unwind of pandemic-era support, without disrupting markets. The presence of the transmission protection instrument serves as a safety valve against disorderly market reactions.

Overall, the ECB's message balances reassurance with vigilance since inflation is near target, growth is holding up, but risks remain, requiring monetary policy that can shift quickly if conditions deteriorate.

The consensus looks for the ECB to stand pat given the economy’s resilience and inflation holding around the 2 percent target. ECB President Lagarde is expected again to stress policy outlook is data-dependent. That puts the focus on the December meeting when new projections on the economy and inflation are due.

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.