The European Central Bank (ECB) has maintained its key deposit rate at 2% for a fourth consecutive meeting, reflecting confidence in the eurozone’s economic resilience despite external pressures. Interest rates on the main refinancing operations and the marginal lending facility will also remain at 2.15% and 2.40%, respectively.
The main refinancing rate represents the cost for banks borrowing from the ECB for one week, while the marginal lending facility covers overnight borrowing. The deposit facility is the rate banks receive for overnight deposits.
Recent economic data shows the eurozone has weathered US tariffs more effectively than initially expected. Growth has remained steady, and inflation has hovered around the ECB’s 2% target. Third-quarter growth was revised up to 0.3%, surpassing earlier forecasts, even as manufacturing, particularly in Germany, faces ongoing challenges. Strong labour markets, robust domestic spending, and investment in technology, including AI innovation, have helped sustain momentum.
The ECB has revised its growth outlook for the region, forecasting 1.4% in 2025, up from a previous estimate of 1.2%. Growth is projected at 1.2% in 2026, 1.4% in 2027, and 1.4% in 2028. The bank’s more optimistic stance reflects the eurozone’s ability to absorb external shocks while maintaining economic stability.
Looking ahead, planned government spending in Germany on defence and infrastructure, facilitated by the lifting of the debt brake, is expected to provide further stimulus in 2026. ECB President Christine Lagarde noted that while the eurozone is operating close to its potential, there is still work to be done in improving productivity across the region.
Market speculation has emerged over a possible rate hike in 2026. Comments from ECB executive board member Isabel Schnabel suggested that inflationary risks may outweigh concerns over a slowdown, citing stronger-than-expected wage growth and services inflation. However, other committee members, including France’s François Villeroy de Galhau, stressed that downside risks to inflation remain significant and emphasised the bank’s commitment to its 2% target.
Headline inflation was recorded at 2.1% in November and has stayed near the ECB’s target since early 2025, supported by higher service-sector prices. The postponement of the EU’s new carbon-pricing system is expected to limit inflationary pressures in 2027. New Eurosystem staff projections indicate average inflation at 2.1% in 2025, 1.9% in 2026, 1.8% in 2027, and 2.0% in 2028.
“The Governing Council is determined to ensure that inflation stabilises at its 2% target in the medium term,” the ECB said, noting it will adopt a data-driven, meeting-by-meeting approach to monetary policy.
The ECB’s decision comes as other major central banks adjust rates. The Bank of England recently cut its key interest rate, and the US Federal Reserve lowered borrowing costs last week, highlighting differences in monetary policy responses across global economies.
