The European Central Bank kept its key interest rate steady at 2% on Thursday, as widely anticipated, and increased growth and inflation projections. The decision was unanimous.
The ECB’s hold marks the fourth consecutive pause in the rate-cutting cycle that began in June 2024. European stock markets continue to rise after the ECB’s decision.
The governing council said that inflation should stabilize at the target of 2% in the medium term. However, staff projections for inflation were revised up to 1.9% from 1.7% in September’s assessment.
Michael Field, Morningstar’s chief European market strategist, said that ECB seems to be “very comfortable with rates as they are.”
“Inflation might fall a touch from here, but will settle at 2%, meaning we’re at the right level when it comes to interest rates. There might be some scope to cut, but the ECB certainly isn’t a rush to do so.”
The decision comes a day after the release of November’s final eurozone inflation figures. The annual euro area inflation rate was at 2.1%, stable compared to October. Core inflation, which shows prices without volatile components such as energy and food costs, rose by 2.4% year over year in November, the same as October. Services inflation remained the main driver of headline inflation, and its contribution went up to 1.58 percentage points in November.
What Are the Key ECB Interest Rates?
Since June 11, the three ECB key interest rates have been:
Deposit facility rate: 2.00%Main refinancing rate: 2.15%Marginal lending facility: 2.40%
Thursday’s decision followed a quarter-point cut in June and unchanged rates at the ECB’s July, September, and October meetings. Since starting its rate-cutting cycle in June 2024, the ECB has cut its key rates eight times, lowering the deposit rate from 4% to 2% overall.
The ECB’s decision came after the US Federal Reserved made another interest rate cut of 0.25 percentage points in Dec. 10 meeting.
The Bank of England cut rates by a quarter point to 3.75% today, meanwhile, the Swedish Riksbank kept policy rate unchanged at 1.75% in today’s meeting.
ECB Inflation and Growth Outlook Revised Up
ECB staff have revised their economic forecasts. They now see headline inflation averaging:
2.1% in 2025 (the same as in its September forecast)1.9% in 2026 (up from 1.7%)1.8% in 2027 (down from 1.9%)2.0% in 2028 (a new forecast)
For core inflation, they expect an average of 2.4% in 2025, 2.2% in 2026, 1.9% in 2027, and 2.0% in 2028.
“Inflation has been revised up for 2026, mainly because staff now expect services inflation to decline more slowly,” the ECB said.
What Are the eurozone Economic Growth Forecasts for 2026?
ECB staff changed their economic growth projections for the eurozone to:
1.4% in 2025 (compared with 1.2% in its September forecast)1.2% in 2026 (up from 1.0%)1.4% in 2027 (up from 1.3%)1.4% in 2028 (a new forecast)
Florian Heider, scientific director of the Leibniz Institute for Financial Research SAFE, said “the current calm in monetary policy gives the ECB the flexibility to react quickly to new data” in an environment where “the global economy will continue to face structural challenges, ranging from digitalization and the use of artificial intelligence to expansionary fiscal policy and high government debt.”
Will the ECB Increase or Cut Interest Rates in 2026?
With inflation stabilizing, economists see the ECB continuing to hold interest rates.
“Our baseline forecast is for the ECB to keep rates at 2% throughout 2026, with a stance that we consider neutral,” said Josefina Rodriguez, economist at Vanguard.
However, she added that falling energy prices and the likelihood of inflation remaining below target for most of next year suggest a stance that is more tilted toward easing than tightening.
Carsten Brzeski, global head of macro at ING, said that the ECB will stay on hold for “foreseeable future.” He added that with expected sub-2% inflation forecasts for the next three years, he sees any following future ECB rate change as a cut, not a hike, at least through late spring in 2026.
Simon Dangoor, head of fixed income macro strategies for Goldman Sachs Asset Management, said:
“While there is some scope for additional easing next year if inflation falls well below 2%, that probability has moved lower. Conversely, the likelihood of a rate hike in 2026 appears very low in our view, given the subdued inflation backdrop—despite recent hawkish rhetoric from committee members.”
How Do Rate Decisions Affect Investors?
Falling rates typically lift equities. In bond markets, falling interest rates push yields lower and bond prices higher. Lower rates also make the coupons of existing bonds—particularly those already issued during a period of high rates—more attractive.
Meanwhile, savings account rates will fall after a rate cut, which impacts cash savers. In contrast, borrowers benefit as consumer debt and mortgages become cheaper.
Morningstar’s Field said that the December decision is “neutral for equity markets, with rates already low as is.”
When Are the ECB Interest Rate Decisions in 2026?Feb. 5, 2026March 19, 2026April 30, 2026June 11, 2026July 23, 2026Sept. 10, 2026Oct. 29, 2026Dec. 17, 2026
The author or authors do not own shares in any securities mentioned in this article. Find out about
Morningstar’s editorial policies.