The European Central Bank announced on Thursday that it would keep its deposit facility rate, main refinancing rate, and marginal lending rate unchanged at 2.50%, 2.65%, and 2.90%, respectively, in line with market expectations.
In its statement, the ECB said that persistently rising energy prices pose upside risks to the inflation outlook and downside risks to the growth outlook.
The ECB noted that although the full impact of the energy shock is still unfolding, underlying inflation has so far remained broadly stable and wages have not yet shown a material response. However, an increase in the scale and duration of the energy shock, along with its effects on indirect and second-round effects, could push inflation higher and weigh on growth.
Since the last meeting, financing conditions have tightened somewhat and are expected to put pressure on both inflation and growth.
The ECB reiterated that it will ensure inflation stabilizes at its 2% target over the medium term.
The Governing Council said it remains capable of responding to the current highly uncertain environment and will continue to determine the appropriate monetary policy stance through a data-dependent, meeting-by-meeting approach.
Specifically, rate decisions will be based on an assessment of the inflation outlook and related risks, in conjunction with the latest economic and financial data, underlying inflation dynamics, and the strength of monetary policy transmission.
The Governing Council emphasized that it will not pre-commit to any particular rate path.
On asset purchases, the ECB said that as euro area central banks no longer reinvest the principal from maturing securities, the Asset Purchase Programme (APP) and Pandemic Emergency Purchase Programme (PEPP) portfolios are declining at a measured and predictable pace.
The ECB also said it stands ready to adjust all of its instruments within its mandate to ensure that inflation stabilizes at the 2% target over the medium term and to safeguard the smooth transmission of monetary policy.
In addition, the Transmission Protection Instrument (TPI) can be used to counter unwarranted, disorderly market dynamics that pose a serious threat to the transmission of monetary policy across euro area countries, thereby helping the Governing Council fulfill its price stability mandate more effectively.
ECB President Christine Lagarde will hold a press conference at 21:45 Beijing time to comment on the considerations behind the decision.
Just hours earlier, Lagarde announced that she will step down in February 2027. Her term had originally been scheduled to end in October 2027.
Traders slightly reduced their bets on further ECB rate hikes, expecting a cumulative 70 basis points of tightening by the end of 2027, down from the previous forecast of 72 basis points.
The euro extended its decline, falling to $1.1111, a 17-month low.
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