ECB holds interest rates steady, sees inflation stabilizing at 2%

Investing.com -- The European Central Bank (ECB) kept its key interest rates unchanged at its Thursday policy meeting, maintaining its data-dependent approach as it forecasts inflation will stabilize at its 2% target in the medium term.

The deposit facility rate remains at 2.00%, the main refinancing operations rate at 2.15%, and the marginal lending facility rate at 2.40%, all in line with market expectations.

In its updated economic projections, the ECB now forecasts headline inflation to average 2.1% in 2025, 1.9% in 2026, 1.8% in 2027, and 2.0% in 2028. Core inflation, which excludes energy and food prices, is projected at 2.4% in 2025, 2.2% in 2026, 1.9% in 2027, and 2.0% in 2028.

The central bank revised its inflation outlook upward for 2026, primarily due to expectations that services inflation will decline more slowly than previously anticipated.

Economic growth forecasts were also upgraded, with the ECB now projecting stronger growth driven by domestic demand. The bank raised its growth outlook to 1.4% for 2025, 1.2% for 2026, and 1.4% for both 2027 and 2028, all higher than in its September projections.

The Governing Council emphasized it "will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance" and is "not pre-committing to a particular rate path."

The ECB also noted that its asset purchase programme (APP) and pandemic emergency purchase programme (PEPP) portfolios continue to decline at a "measured and predictable pace" as the Eurosystem no longer reinvests principal payments from maturing securities.

The central bank reaffirmed its readiness to adjust all instruments within its mandate to ensure inflation stabilizes at its 2% target and to preserve smooth monetary policy transmission.

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