ECB holds rates steady
18 DEC, 2025
By Joanna Piwko from RankiaPro Europe
The European Central Bank has left interest rates unchanged, reinforcing a cautious and data-dependent approach to monetary policy. With inflation hovering close to target and economic growth proving more resilient than expected, policymakers see themselves in a strong position to wait and assess incoming data. Market participants, however, may be running ahead of themselves, as several economists warn that expectations of near-term policy shifts appear overly optimistic.
ECB meeting: a strong position
Andrea Campisi, Senior Investment Manager at Pictet Asset Management
The ECB kept interest rates unchanged, confirming a cautious approach and showing confidence in the current monetary policy stance, while reiterating that it is in a good position to act as needed based on macroeconomic data, meeting by meeting. The new economic projections highlighted positive growth surprises, with upward revisions for the coming years, alongside inflation at target over the medium term.
The ECB also stressed that the below-target inflation expected in 2026/2027 should be considered temporary, pointing to a balance between progress in the disinflation process and persistent price pressures, particularly in services.
Against a backdrop of reduced uncertainty related to trade tariffs, scenario risks nonetheless remain linked to other sources of uncertainty, such as downward price pressures from Chinese imports and global geopolitics. President Lagarde acknowledged the recent short-term market repricing, driven by comments from Schnabel, but did not push back strongly following the growth revisions, signalling a degree of tolerance for tighter financial conditions.
Overall, the message was one of balance: policy unchanged, a data-dependent approach, and no signal of forward guidance, confirming a market that, in our view, currently appears overly optimistic about expectations of a possible rate hike over the next 12 months.
ECB seeking preserve conventional policy space
By Konstantin Veit, Portfolio Manager at PIMCO
The European Central Bank (ECB) remains in a strong position, with inflation close to target and resilient growth at around trend levels.
Most members of the Governing Council (GC) are likely to view the 2% policy rate as sitting at the midpoint of a neutral range.
The latest staff projections, which now include initial figures for 2028, continue to forecast inflation broadly in line with the ECB’s 2% target.
On inflation, we broadly agree with the majority view of the Governing Council and believe that risks to the medium-term outlook remain largely balanced.
We think the ECB will seek to preserve conventional policy space and will therefore look through the short-term downside deviations from the inflation target that are currently projected.
Markets have now fully priced out any further monetary policy easing, aligning with our view that the rate-cutting cycle has ended at 2%.
We continue to expect policy rates to remain unchanged in the near term, while keeping an open mind about the direction of the next policy move.
In line with all expectations
Felix Feather, Economist at Aberdeen Investments
The European Central Bank (ECB) kept its deposit rate at 2% today, in line with all expectations. The decision framework also matched prior expectations, with no changes to forward guidance. This signals that rates are unlikely to be adjusted for some time, unless the economy faces an unexpected crisis.
Similarly, changes to the ECB’s forecasts were also in line with expectations. Notably, growth forecasts were revised upwards, bringing the ECB’s estimates closer to our own. Given that economic activity is expected to remain broadly resilient and inflation is likely to stay close to target, we do not expect any rate adjustment by the ECB during 2026.
ECB remains in a good place
Dave Chappell, Senior Fund Manager, Fixed Income at Columbia Threadneedle Investments
The December ECB decision and press conference was always likely to pass with no big surprises. Whilst the better growth forecasts had been widely expected by most, the uptick in core inflation to above, or around target out to 2028 was driven by the assumption that service inflation would remain somewhat elevated for longer. Other than that, President Lagarde stuck to the expected themes of no set path to policy, meeting to meeting and data dependent. Reaction in the markets confirmed that for now, the ECB remains in a good place, with the ability to monitor developments from the sidelines.
