The European Central Bank (ECB) has decided to leave its three key interest rates unchanged, maintaining the deposit facility at two per cent, the main refinancing operations rate at 2.15 per cent, and the marginal lending facility at 2.40 per cent.

The Governing Council announced on Thursday (today) that inflation is currently hovering around its medium-term target of two per cent, with its overall assessment of the outlook remaining broadly unchanged.

Fresh ECB staff projections present a picture largely in line with forecasts published in June. Headline inflation is expected to average 2.1 per cent in 2025, before easing to 1.7 per cent in 2026 and edging up slightly to 1.9 per cent in 2027.

Excluding energy and food, inflation is projected at 2.4 per cent in 2025, falling to 1.9 per cent in 2026 and 1.8 per cent in 2027.

Growth prospects have been revised upward for 2025, with the economy now forecast to expand by 1.2 per cent compared to June’s 0.9 per cent projection. However, growth for 2026 has been trimmed to one per cent, while the 2027 outlook remains unchanged at 1.3 per cent.

The ECB reiterated its commitment to ensuring inflation stabilises at two per cent in the medium term. It emphasised that monetary policy decisions will continue to be taken on a “meeting-by-meeting” basis, guided by incoming economic and financial data, underlying inflation dynamics, and the effectiveness of monetary policy transmission.

Crucially, the Governing Council stressed it is “not pre-committing to a particular rate path,” signalling flexibility amid lingering uncertainties in the eurozone economy.

Meanwhile, the central bank confirmed that both the Asset Purchase Programme (APP) and the Pandemic Emergency Purchase Programme (PEPP) portfolios are continuing to decline at a predictable pace, with the Eurosystem no longer reinvesting principal payments from maturing securities.

Photo credit: The European Central Bank / CC BY-SA 4.0