ECB leaves rates unchanged, warns on trade: “If market sentiment deteriorates risks to growth”

Brussels – Uncertainties remain; optimism is cautious, as is the European Central Bank’s move, which sees no improvement in the economic situation to justify new interest rate cuts. The ECB’s Governing Council leaves them unchanged, without even considering alternative options. “Neither cuts nor increases were discussed today,” ECB President Christine Lagarde said at the end of the meeting. 

The interest rate on deposits with the central bank thus remains at 2 per cent, the rate on the main refinancing operations remains at 2.15 per cent, and the rate on the marginal lending operations is confirmed at 2.40 per cent. The pause started in July therefore continues and will continue until the data suggest otherwise. Because, Lagarde reiterates, the ECB will continue to rely on the information available, and this information will be authoritative.

Inflation worsens in 2026, growth is better

Speaking of data, new projections by Eurosystem experts point to an average overall inflation of 2,1 per cent in 2025 (unchanged from September estimates), 1.9 per cent in 2026 (+0.2), 1.8 per cent in 2027 (-0.1) and 2 per cent in 2028. “Inflation has been revised upwards for 2026, mainly because experts now expect a slower decline in services inflation,” Lagarde explains. 

On the other hand, however, “economic growth is expected to be stronger than projected in September, driven mainly by domestic demand,” she adds. Still numbers in hand, the growth for the eurozone has been revised upwards to 1.4 per cent in 2025 (instead of 1.2 estimated in September), to 1.2 per cent in 2026 (instead of 1), and to 1.4 per cent in 2027 (instead of 1.3), and eurozone GDP is expected to grow by 1.4 per cent in 2028 as well. This is due to domestic consumption, which remains the main driver.

Beware of accounts and reforms, and trade too

This situation, however, remains at the mercy of political will. This is why Lagarde recalls “the urgent need to strengthen the euro area and its economy in the current geopolitical context,” characterised by challenges and questions. Among the challenges, the ECB president includes “sustainability of public finances, strategic investments, and growth-enhancing structural reforms.” Added to this is the perceived need to “exploit the full potential of the single market,” which is seen as “fundamental,” and to proceed with “further integration of the capital market by completing the savings union and investments and the banking union,” which implies the ratification of the agreement to reform the European Stability Mechanism (ESM).

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Not only that: “Although trade tensions have eased, the still volatile international environment could disrupt supply chains, curb exports and weigh on consumption and investment,” Lagarde continues. Without explicitly mentioning the EU-Mercosur free trade agreement, the call is to avoid disruptions and backtracking. ​The ECB president warns, “A deterioration in sentiment in global financial markets could lead to tighter financing conditions, higher risk aversion and weaker growth.” Tighter financing conditions mean higher interest rates. The government is warned.