As expected, the European Central Bank left interest rates unchanged at its last meeting on Thursday.
The central bank kept its benchmark deposit facility rate at 2% for the third straight day, after last cutting rates in June. The rate cut, which coincided with the ECB’s 2% inflation target in the euro zone, was part of a cycle of interest rate cuts that has brought interest rates down from a record high of 4% last year.
The ECB said in a statement on Thursday that “inflation remains close to the medium-term target of 2% and the Governing Council’s assessment of the inflation outlook remains broadly unchanged.”
“The economy has continued to grow despite the challenging global environment. The robust labor market, solid private sector balance sheets and the Governing Council’s past interest rate cuts remain important sources of resilience,” it said.
However, it warned that “the outlook remains uncertain, particularly due to ongoing global trade disputes and geopolitical tensions.”
While euro zone inflation rose slightly to 2.2% in September from 2% the previous month, the rise was attributed to a rise in services prices and economists had said the central bank was likely to remain cautious about intervening in interest rates at this time.
Expectations that the ECB would leave interest rates unchanged were boosted early Thursday as preliminary euro zone growth data showed the economy grew 0.2% in the third quarter compared with the previous three-month period. The figure was above expectations and showed that economic activity remained robust despite prevailing uncertainty about business activity due to US trade tariffs.
ECB President Christine Lagarde told reporters that while the services sector continued to grow – boosted by strong tourism and a revival in digital services – manufacturing had been “hampered by higher tariffs, still-elevated uncertainty and a stronger euro.”
She added that the divergence between external and internal demand is “likely to persist” in the near future. “The economy should benefit from consumers spending more as real incomes rise,” Lagarde noted.
“From a monetary policy perspective, we are in a good position,” Lagarde told CNBC’s Annette Weisbach. “Is it a solid, good place? No. But we will do whatever it takes to make sure we stay in a good place.”
A projected illumination to mark the 75th anniversary of the Schuman Declaration in the Grossmarkthalle at the headquarters of the European Central Bank in Frankfurt, Germany, on May 9, 2025.
Alex Kraus/Bloomberg via Getty Images
Following the ECB’s announcement, the euro gave up earlier gains to trade 0.26% below the dollar at $1.1571.
“What a boring announcement,” Mike Coop, chief investment officer EMEA at Morningstar Wealth, told CNBC on Thursday.
“It belies the fact that inflation has actually started to behave quite well again… so it’s hardly surprising that they’re in no rush to change interest rates,” he told CNBC’s “Decision Time.”
“The bigger picture, I think, is that Europe is still getting used to the three shocks, namely the loss of cheap energy, the worsening terms of trade with the US and the need to spend more on defense. In addition to those three things, the US is now also sucking up investment from other parts of the world, so Europe hasn’t had the incentive that we saw in the US to support growth,” he told CNBC’s Karen Tso.
Data dependency
The central bank has repeatedly said it will take a session-specific and data-dependent approach to setting interest rates, and reiterated that stance on Thursday. However, senior ECB board members told CNBC this month that the easing cycle is nearing or has reached its end.
Martin Kocher, ECB Governing Council member and governor of the Austrian National Bank, said that as long as nothing “drastic” happened, Europe was “fine.”
“Right now I think we’re in a good place. So there’s no reason to change anything unless there are changes that force us to do something,” Kocher told CNBC’s Karen Tso at the IMF and World Bank annual meetings in Washington.
“And if you look at the bigger picture, yes, the easing cycle is nearing its end or is coming to an end, but there is no reason to pre-commit at this point.”
In a separate interview, Governing Council member François Villeroy de Galhau said he recommends “agile pragmatism” when it comes to the evolution of interest rates, adding: “We are in a good position… but a good position is not a fixed position.”
A majority of economists polled by Reuters in mid-October said the ECB would maintain its deposit rate this year, while 45 of 79 economists surveyed (57%) saw no change by the end of 2026.
—CNBC’s Tasmin Lockwood and Leonie Kidd contributed to this story.
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