The European Central Bank concluded its final policy meeting of the year on Thursday,holding key interest rates steady despite persistent inflation and growing debate around potential rate cuts in 2024 [[2]]. Maintaining its current monetary policy, the ECB signaled a commitment to a data-dependent approach as it navigates the complex economic landscape of the Eurozone, balancing the need to curb inflation with supporting economic growth.The decision impacts borrowing costs for businesses and consumers across the 20-nation currency bloc.
The European Central Bank (ECB) held steady its key interest rates on Thursday, December 18, as policymakers continue to assess the path of inflation in the Eurozone. The decision comes amid growing debate over when the central bank might begin to ease its monetary policy.
The ECB’s governing council decided to maintain the overnight deposit facility rate at 2%, the main refinancing operations rate at 2.15%, and the marginal lending facility rate at 2.4%. These rates have remained unchanged since June 11.
In a statement released following the meeting, the ECB reiterated its commitment to bringing inflation back to its 2% target in the medium term. The central bank has been closely monitoring economic data to guide its decisions.
“The Council’s approach to determining the appropriate monetary policy stance at each meeting will remain data-dependent,” the ECB stated. “The Council’s decisions on interest rates will be based on an assessment of the inflation outlook and the risks to it, taking into account economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission.”
The ECB also noted that it does not pre-commit to a specific path for interest rates. This stance reflects the ongoing uncertainty surrounding the economic outlook.
Experts now forecast that overall inflation will average 2.1% in 2025, 1.9% in 2026, 1.8% in 2027, and 2% in 2028. Excluding energy and food prices, core inflation is projected to be 2.4% in 2025, 2.2% in 2026, 1.9% in 2027, and 2% in 2028.
The inflation outlook for 2026 has been revised upward, primarily due to expectations of a slower decline in services inflation.
Alongside the inflation projections, forecasts for Eurozone economic growth have been revised upward. The ECB now anticipates growth of 1.4% in 2025, 1.2% in 2026, and 1.4% in 2027, with growth remaining at 1.4% in 2028. This improved outlook is largely driven by stronger domestic demand. The development suggests a more resilient Eurozone economy than previously anticipated.
CONTEXT:
The ECB lowered all three of its key interest rates at previous meetings in September, October, and December of last year, as well as in January, March, April, and June of this year. Rates were held steady in July of last year, following cuts made at the June meeting.
In its efforts to combat high inflation, the ECB’s governing council raised interest rates incrementally over ten consecutive meetings from July 2022 to September 2023, reaching record highs before pausing its tightening cycle.
According to data from Eurostat, annual inflation in the Eurozone rose to 2.2% in November, compared to 2.1% in October.
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