ECB holds rates in December

Decision meets market expectations: At its meeting on 17–18 December, the European Central Bank (ECB) decided to keep its deposit rate at 2.00% for the fourth meeting in a row. It also held its refinancing and lending rates at 2.15% and 2.40%, respectively. The decision was in line with market expectations.

Stable inflation, resilient GDP growth support hold: The ECB’s latest decision was due to stable inflation and resilient economic growth. On the price front, harmonized inflation projections for 2026 were upwardly revised due to stickier-than-expected price pressures for services. With regard to economic growth, the 2026 GDP growth forecast was upgraded from September’s ECB projections on the back of stronger domestic demand. As a result, the Central Bank considered it appropriate to remain in wait-and-see mode.

ECB to hold fire in 2026: At her post-meeting press conference, President Christine Lagarde reiterated that ECB rates are in “a good place,” while stressing that future moves will be driven by incoming data. Compared to last month, our Consensus has become more hawkish, with the vast majority of our panelists now forecasting the ECB to stand pat through 2026. That said, the impact of U.S. tariffs on inflation in the European bloc is still to be fully assessed and remains a key factor to monitor. The Bank is set to reconvene on 4–5 February.

Panelist insight: Commenting on the outlook, Nomura analysts stated: “We believe the next move will most likely be in response to a shock. Shocks by definition are unforecastable, and so a future shock might be inflationary (requiring restrictive policy) or disinflationary (requiring accommodative policy). Moreover, we believe the ECB will be unswayed by additional Fed rate cuts. […] Only if the Fed cuts rates aggressively into accommodative territory in response to a weaker US economy, which would meaningfully weigh on global growth, do we believe the ECB would likely cut further.”

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