ECB keeps interest rates steady as eurozone growth stays strong
The eurozone economy has handled US tariffs better than expected. Economic growth remains strong, and inflation is staying around the European Central Bank’s (ECB) 2% target.
On Thursday, the ECB kept its key deposit rate at 2% for the fourth meeting in a row. The rates for its main refinancing operations and the marginal lending facility will also stay at 2.15% and 2.40%, respectively.
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Main refinancing rate: what banks pay to borrow money from the ECB for one week.
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Marginal lending rate: what banks pay to borrow overnight.
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Deposit rate: the interest banks earn when they leave money with the ECB overnight.
Recent economic data shows the eurozone is growing faster than expected. Because of this, the ECB raised its growth forecast again. It now expects the region’s economy to grow:
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1.4% in 2025 (up from 1.2% before)
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1.2% in 2026
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1.4% in 2027
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1.4% in 2028
This year, the European Central Bank (ECB) has become more optimistic because US tariffs have not hurt the economy as much as feared.
Although the tariffs are still limiting exports, eurozone growth in the third quarter was revised up to 0.3%, higher than expected.
Manufacturing is still struggling, especially in Germany, but the eurozone’s job market and domestic spending remain strong. Interest in AI has boosted investment, and surveys show the economy is staying resilient.
Looking ahead to 2026, Germany plans to spend more on defence and infrastructure after easing its debt limits, which should help the economy further.
ECB President Christine Lagarde said in early December: “We are close to our potential, but we need to work on improving productivity in the euro area.”
Will rates rise in 2026?
Before the ECB released new data on Thursday, analysts were guessing that interest rates might go up in 2026.
These predictions were influenced by ECB board member Isabel Schnabel, who said inflation risks are now bigger than the risk of a slowdown. She pointed out that wage growth and services inflation have been higher than expected and is “comfortable” with investors expecting a rate hike. Her comments show there may be differing opinions within the ECB.
Another member, France’s François Villeroy de Galhau, said in December: “Risks of inflation falling too low are just as serious as inflation rising too high, and we won’t allow inflation to stay below our target.”
Inflation was 2.1% in November and has been close to the ECB’s 2% target since early 2025, mainly due to higher service prices. Delays in the EU’s new carbon-pricing system (ETS2) may keep inflation lower than expected in 2027.
New ECB forecasts expect inflation to average:
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2.1% in 2025
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1.9% in 2026
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1.8% in 2027
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2.0% in 2028
The ECB said on Thursday: “We are determined to keep inflation around 2% in the medium term. We will decide on policy based on the latest data, meeting by meeting.”
The ECB’s announcement comes after the Bank of England cut interest rates in the UK on Thursday and the US Federal Reserve lowered borrowing costs last week.
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