The Governing Council of the European Central Bank has announced that all three key interest rates will remain unchanged. This decision reflects the regulator’s updated assessment that inflation in the euro area continues to move toward the medium-term target of 2%. The ECB emphasizes that the current monetary policy stance is already exerting a restraining effect on price growth, and that no additional sharp measures are required at this stage.
According to the latest projections by Eurosystem experts, average inflation is expected to stand at around 2.1% in 2025, after which it should gradually decline and stabilize close to the target level. Core inflation, which excludes energy and food prices, is also showing signs of easing, although pressure from the services sector remains more persistent than previously anticipated. This has been the key reason for the upward revision of inflation expectations for 2026.
Economic Growth and Domestic Demand Dynamics
The economic outlook for the euro area appears more optimistic compared with assessments made in the autumn. The ECB notes strengthening domestic demand, rising consumption, and a gradual recovery in investment activity. As a result, GDP growth forecasts have been revised upward: the region’s economy is expected to grow at a steady pace and maintain positive momentum through 2028.
Additional support for the economy comes from the stabilization of energy markets, lower inflation expectations among households, and a gradual recovery in real incomes. These developments create conditions for more balanced growth without a sharp resurgence of inflationary pressure.
ECB Policy: Flexibility and Data-Driven Decisions
The ECB’s leadership has once again reaffirmed its commitment to making decisions based on incoming macroeconomic and financial data. The regulator is not pre-committing to any specific interest rate path, retaining the flexibility to respond to changes in inflation risks, core inflation dynamics, and the effectiveness of monetary policy transmission to the real economy.
The ECB’s key rates—including the deposit facility rate, the main refinancing operations rate, and the marginal lending facility rate—remain unchanged. This sends a signal to markets that the regulator intends to maintain a cautious approach and avoid premature decisions that could destabilize financial conditions.
Asset Purchase Programs and Financial Stability Protection
At the same time, the ECB continues the gradual reduction of its balance sheet under the Asset Purchase Programme (APP) and the Pandemic Emergency Purchase Programme (PEPP). The Eurosystem is no longer reinvesting the principal payments from maturing securities, leading to a steady balance sheet runoff without causing abrupt market disruptions.
An important element remains the Transmission Protection Instrument, which can be activated in the event of unwarranted and disorderly movements in the sovereign bond markets of individual euro area countries. This mechanism allows the ECB to ensure the smooth and even transmission of its monetary policy across all member states of the monetary union and to effectively fulfill its mandate of maintaining price stability.
In the coming months, investors and analysts will closely monitor new data on inflation, labor markets, and economic growth, as these indicators will shape the European Central Bank’s next steps and the outlook for interest rates in the euro area.