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2025-12-18 21:18:50
[Interest Rates Unchanged, Expectations Slightly Adjusted: ECB Finds a "Comfort Zone" Between Growth and Inflation] ⑴ The European Central Bank (ECB) decided on Thursday to keep its three key interest rates unchanged: the deposit facility rate, the main refinancing rate, and the marginal lending rate, at 2.00%, 2.15%, and 2.40%, respectively. ⑵ Its latest assessment reaffirms that inflation is expected to stabilize at the 2% target level over the medium term. ⑶ The latest forecasts from Eurosystem staff show that overall inflation will average 2.1% in 2025, 1.9% in 2026, 1.8% in 2027, and 2.0% in 2028; core inflation (excluding energy and food) is projected at 2.4%, 2.2%, 1.9%, and 2.0%, respectively. ⑷ Notably, the 2026 inflation forecast has been slightly revised upward, mainly because staff now expect a slower decline in inflation in the services sector. (5) Meanwhile, economic growth forecasts were revised upwards across the board compared to the September projections, primarily driven by domestic demand. Growth is projected at 1.4% in 2025, 1.2% in 2026, and 1.4% in both 2027 and 2028. (6) The ECB emphasized that it will rely on data and analyze each meeting individually to determine its policy stance, and has not pre-committed to a specific interest rate path. (7) As bonds redeemed under the asset purchase program mature and are no longer reinvested, its balance sheet is contracting at a controlled and predictable pace. (8) Overall, the upward revisions to growth and inflation forecasts provide ample justification for the ECB to remain on hold, suggesting that its rate-cutting cycle may have paused and policy will enter a period of observation.
