ECB keeps rates unchanged as prospects brighten

The new numbers are likely to lock in the view that the ECB — which has now left rates unchanged for the fourth meeting in a row — is heading for an extended period on the sidelines. Most economists and investors now expect borrowing costs to remain unchanged throughout 2026, barring a major economic shock.

“Economic growth is expected to be stronger than in the September projections, driven especially by domestic demand,” the ECB said in its statement, repeating again that it will respond to any material changes if incoming economic data demand it.

The ECB has become gradually more upbeat since the EU decided not to escalate trade tensions with the U.S., and since the risk of a regional conflict in the Middle East receded. That helped the economy to grow by a stronger-than-expected 0.3 percent in the third quarter, and business surveys suggest that it has continued to expand through the year-end.

The ECB also updated its inflation forecasts for the next two years, and now sees inflation at 1.9 percent in 2026 and 1.8 percent in 2027. That is little changed from 1.7 and 1.9 percent respectively three months ago. The first inflation forecast for 2028 sees prices right back at the 2 percent level that the ECB considers to represent price stability.

While the new forecasts will likely have secured broad backing for today’s decision, Governing Council members have diverging views on the years ahead. Executive Board member Isabel Schnabel said last week she believes the next move is likely to be up, while Finland’s central bank governor Olli Rehn kept the door to further easing ajar, warning that downside risks to the inflation outlook still dominate.

ECB President Christine Lagarde will hold her regular press conference at 14:45 CET, and will likely give a sense of where she stands on that debate.