ECB holds first meeting of the year as rates expected to stay unchanged
3 FEB, 2026
By Joanna Piwko from RankiaPro Europe
The European Central Bank (ECB) meets this Thursday, February 5, for the first time this year. Markets widely expect President Christine Lagarde to keep interest rates unchanged for a fifth consecutive meeting, with any other decision likely to come as a surprise. What do experts think?
Flavio Carpenzano, Asset Class Lead for Fixed Income, Europe and Asia at Capital Group
European yield curves have steepened: short-term yields have edged higher amid improving growth prospects, while longer-dated yields have sold off due to expectations of increased issuance in Germany.
We maintain a short position in German bonds, as improved sentiment, supportive fiscal policy, and higher issuance could push yields higher. We remain cautious on France, given the ongoing political instability.
We prefer exposure to Italy, Spain, and Greece. Peripheral sovereign bonds continue to show resilience, with Spain benefiting from lower energy costs and Italy maintaining solid fiscal discipline alongside EU-funded investment.
The European Central Bank (ECB) may keep interest rates unchanged for much of the year, with potential hikes toward the end of 2026 depending on positive surprises in growth and inflation.
We favor curve steepeners in anticipation of increased issuance and an improving growth trajectory.
Konstantin Veit, Portfolio Manager at PIMCO
Ahead of the February meeting, we expect the ECB to keep the deposit facility rate (DFR) unchanged at 2% for the fifth consecutive time. With inflation broadly in line with the target, growth running at trend levels, and labor markets still resilient, the ECB has little reason to adjust its policy at this stage. While debate over medium-term inflation risks persists, we believe the Governing Council will look through modest deviations from the target driven by energy prices and keep rates on hold in the near term, as wage and services inflation continue to normalize.
François Rimeu, Senior Strategist at Crédit Mutuel Asset Management
The European Central Bank (ECB) is expected to keep its key policy rates unchanged at its first meeting of the year, as it has done since last July. Its statement will aim to preserve maximum flexibility regarding the future direction of monetary policy, with no explicit commitments or precise guidance on the policy path ahead.
The absence of new macroeconomic projections at this meeting will reinforce this cautious approach. Risks surrounding the inflation outlook are likely to be presented as broadly balanced, despite ongoing divergences within the Governing Council over the medium-term inflation trajectory.
Our expectations for this week’s meeting:
- The Governing Council is expected to keep its main policy rate, the deposit rate, unchanged at 2%, in an environment where inflation risks appear broadly balanced.
- The statement will continue to emphasize a meeting-by-meeting, data-dependent approach, avoiding any prior commitments and stressing that all monetary policy options remain open, particularly amid the euro’s appreciation.
Felipe Villarroel, Portfolio Manager at TwentyFour AM (a Vontobel boutique)
Regarding the upcoming ECB meeting, we expect no changes to the current monetary policy stance. While the recent appreciation of the euro against the dollar has become a key topic due to its potential disinflationary impact, the ECB is more likely to monitor the situation closely rather than take immediate action.
The macroeconomic outlook, including the ECB’s December 2025 projections, which forecast growth of 1.2% in 2026 and inflation easing to 1.9%, supports maintaining a neutral policy rate. Although there is some market speculation that a stronger euro could lead to rate cuts, the ECB does not target specific exchange-rate levels when setting policy.
Any initial response to sustained euro strength would likely be limited to verbal intervention rather than immediate rate changes. A significant shift in the broader macroeconomic environment—particularly a sharp decline in inflation or inflation expectations—could prompt a reassessment, but this is not the base-case scenario at present.
Martin Wolburg, Senior Economist at Generali AM, part of Generali Investments
- We expect the ECB to keep interest rates unchanged for the time being, but see risks tilted toward a rate cut, especially if the appreciation of the euro gains further momentum.
- We maintain a positive view on euro area activity and continue to expect a growth rate of 1.3% in 2026.
- Rising consumer confidence, a resilient labor market, the rollout of Germany’s fiscal “bazooka,” and moderating inflation should support a broad-based recovery.
Given our constructive economic outlook and the overall inflation picture, which remains in line with the ECB’s latest macroeconomic projections, we continue to believe that interest rates will remain unchanged for now. President Lagarde is expected to reiterate that monetary policy remains in a “good place” at the February 5 monetary policy meeting.
However, in its December projections, the ECB assumed a 1.6% increase in the euro’s effective exchange rate in 2026, whereas it has already risen by 2.2%. An ECB study concludes that a 1% appreciation of the euro reduces headline inflation by around 0.04% after one year. This comes on top of an already challenging global environment, with U.S. tariffs in place and intense competition from China. Recent comments from ECB Governing Council members suggest that euro strength has become a more explicit factor in the reaction function, with Banque de France Governor Villeroy de Galhau stating that a “strong euro” will be one of the elements guiding ECB policy. As a result, we view further euro appreciation as a key risk that could trigger monetary policy easing. In this context, we also see market expectations for a rate hike in 2027 as overstated.
Clear Signs of a Recovery in Europe
Economic confidence had improved since last summer, but this trend has recently stalled. For example, the composite PMI stood at 51.5 over the past two months. According to the first estimate, GDP growth in the fourth quarter of 2025 came in at 0.3% quarter on quarter, unchanged from the third quarter and defying expectations of a slight slowdown.
We expect activity to strengthen. Consumer confidence continued to rise in January, reaching its highest level since early 2025, and loan growth is still improving. Domestic activity should be supported by a combination of falling inflation, a solid labor market (with the unemployment rate at a record low of 6.3%), and Germany’s increasingly effective fiscal stimulus. In addition, the global environment is showing signs of improvement, which should at least help stabilize the manufacturing sector.
Overall, we maintain our 2026 growth forecast of 1.3%. Downside risks stem from a renewed escalation in trade conflicts, vulnerabilities in the financial sector, and further appreciation of the euro.
