| Consensus | Consensus Range | Actual | Previous | |
| Refi Rate Change | 0bp | 0bp to 0bp | 0bp | 0bp |
| Refi Rate Level | 2.15% | 2.15% to 2.15% | 2.15% | 2.15% |
| Deposit Rate Change | 0bp | 0bp to 0bp | 0bp | 0bp |
| Deposit Rate Level | 2.0% | 2.0% to 2.0% | 2.0% | 2.0% |
Highlights
The ECB's latest decision reflects a central bank maintaining a steady policy stance rather than signalling inaction. By keeping rates unchanged, the Governing Council signals confidence that inflation is converging towards its 2 percent target, while acknowledging that the journey remains exposed to external shocks. The emphasis on resilience is notable since low unemployment, strong private balance sheets, and rising public investment in defence and infrastructure are cushioning growth despite an unsettled global backdrop.
At the same time, the tone remains deliberately cautious. Ongoing trade policy uncertainty and geopolitical tensions continue to cloud the outlook, reinforcing the ECB's insistence on a data-dependent, meeting-by-meeting approach. There is no pre-commitment to a rate path, underscoring a preference for flexibility over forward guidance.
Balance sheet normalisation is proceeding quietly in the background, with APP and PEPP holdings declining in a predictable manner, signalling confidence in market functioning without tightening financial conditions abruptly. Importantly, the ECB retains its full toolkit. The explicit reference to the Transmission Protection Instrument serves as a reminder that fragmentation risks will not be tolerated.
In essence, the message is one of conditional confidence as policy is on hold for now, but agility remains central as inflation dynamics and transmission effects continue to evolve.
Market Consensus Before Announcement
Forecasters see the ECB on hold at this meeting and likely through 2026.
Definition
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.
Description
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.