The ECB’s Governing Council decided on Thursday 29 October to leave its three key interest rates unchanged, following the increases decided in June and September (see EUROPE 13935/14).
The deposit facility rate, the main refinancing operations rate and the marginal lending facility rate therefore remain, respectively, at: 2.50%, 2.65% and 2.90%.
Describing the decision as unanimous, ECB President Christine Lagarde, who officially announced the same day that she would step down on 7 February 2027 (see EUROPE 13971/1), said of the current economic situation in the euro area: “The situation we see now could have warranted a hike.” If new data available by the meeting on Thursday 17 December confirm that situation, “the sense of direction is quite clear”, she said, preparing financial markets for a third increase in key interest rates.
Among the developments since the September meeting, Ms Lagarde cited a marked surge in energy prices (18.3% in September, compared with 14.3% in August) owing to persistent geopolitical tensions in the Middle East, as well as higher financing costs, particularly for long-term government debt. The ECB considers that upside risks to inflation predominate.
Nevertheless, according to the outgoing President: “For the moment, we do not see risk of second-round effect.” Such effects could, in particular, take the form of wage increases.
Hence the ECB’s decision to adopt a “measured” monetary policy response to the risk of inflation.
Turning to the economy, the former IMF chief noted that growth had held up in the third quarter of 2026 thanks to strong performance in the services sector, driven by investment in artificial intelligence, and public spending on infrastructure and defence. Nevertheless, the ECB considers that downside risks to growth predominate because of uncertainty surrounding the crisis in the Middle East and its effect on energy prices, trade tensions and the fiscal position of euro area countries.
The Governing Council stands ready to respond to any eventuality in order to stabilise inflation at its 2% medium-term target. It will continue to use the latest data to determine the appropriate monetary policy stance, meeting by meeting.
Asked repeatedly about the higher interest rates demanded by buyers of French government debt, Ms Lagarde did not deny that some heavily indebted euro area countries faced “particular challenges”. “Should market developments threaten the smooth transmission of our monetary policy, including through unwarranted and disorderly market movements, we have monetary instruments available to respond. And the criteria and conditions under which these apply are well known”, she added.
See the monetary policy decisions: https://aeur.eu/f/o6b (Original version in French by Mathieu Bion)