ECB Holds Interest Rates At 2% As Eurozone Growth Shows Resilience

The European Central Bank (ECB) left interest rates unchanged at 2% for the third consecutive meeting on Thursday, maintaining that its monetary policy was in a “good place” as the eurozone economy continues to withstand global uncertainty.

The decision follows rate cuts totalling 2 percentage points earlier this year, but the ECB has since paused further moves. President Christine Lagarde’s measured tone during Thursday’s press conference signalled that the bank sees no urgent need to adjust its current stance.

Lagarde pointed to recent positive developments — including the Gaza ceasefire, Europe’s trade pact with the United States, and a tariff-reduction deal between U.S. President Donald Trump and China’s Xi Jinping — as helping to ease downside risks to growth.

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“From a monetary policy point of view, we are in a good place,” Lagarde said. “Is it a fixed good place? No. But we will do whatever is needed to make sure that we stay in a good place.”

Despite the eurozone’s modest 0.2% growth rate in the third quarter, Lagarde described the performance as encouraging, noting that it exceeded both market and ECB expectations. However, she warned that inflation remains a concern and is projected to fall below the central bank’s target next year.

“I think on that front, it’s a more balanced picture,” she added.

Financial markets largely maintained their expectations following the announcement, with investors seeing a 40% to 50% chance of one final rate cut by mid-2025.

Mixed Economic Data Keeps ECB on Guard

“We do not expect rate changes from the ECB for a long time, though there are still many risks to this view,” said Nordea economist Jan von Gerich. “Also today’s message further illustrated that the ECB is nowhere near any rate changes.”

Lagarde also highlighted possible changes to the European Union’s ETS2 emissions trading system, which could alter inflation forecasts. The system was initially expected to add 0.3 percentage points to inflation by 2027, but EU officials are now considering a two-year phase-in, potentially softening its impact and keeping inflation below the ECB’s 2% target.

Recent economic indicators have offered a mixed picture. While Thursday’s GDP figures outperformed ECB projections — with Spain and France leading growth in the third quarter — industrial output remains weak, and exports to the United States have fallen sharply.

A recent Purchasing Managers’ Index (PMI) survey pointed to stronger business activity, and sentiment in Germany — the eurozone’s largest economy — has begun to improve. Yet, concerns linger as China offloads surplus goods into European markets, potentially unsettling regional manufacturing.

ECB Chief Economist Philip Lane has previously suggested that if inflation continues to undershoot targets, a “slightly lower” policy rate could be justified. Still, most analysts believe rates will stay unchanged for the foreseeable future.

“Overall, the scenario of an unchanged deposit rate of 2.0% remains the most likely scenario, as the hurdle for rate hikes is usually very high for the ECB,” said Commerzbank economist Jörg Krämer.

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