The European Central Bank (ECB) has kept interest rates unchanged for a third consecutive meeting as it weighs up the outlook for inflation and the still uncertain fallout from US trade tariffs.
With the inflation hovering at close to the bank’s target rate of 2 per cent, the ECB’s governing council kept its key deposit rate at 2 per cent, a move that had been widely anticipated.
After eight straight rate cuts, the bank now appears to have moved into a holding pattern.
ECB president Christine Lagarde said monetary policy remained in a “good place” and that the downside risks to growth had eased in light of the recent EU-US trade deal, the ceasefire in the Middle East and the announcement of progress in the US-China trade negotiations.
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“Most measures of longer-term inflation expectations continue to stand at around 2 per cent — supporting the stabilisation of inflation around our target,” she said.
“At the same time, the still volatile global trade environment could disrupt supply chains, further dampen exports, and weigh on consumption and investment.
“A deterioration in financial market sentiment could lead to tighter financing conditions, greater risk aversion and weaker growth,” Ms Lagarde warned.
Matthew Ryan, head of market strategy at global financial services firm Ebury said: “We see nothing in Lagarde’s press conference that would suggest to us that further cuts are on the way.
“This could change next year should fiscal stimulus in Germany fail to provide the desired boost to growth, and/or the tariffs weigh more heavily on the economy than expected,” he said.
“Yet, the bar for additional cuts is now extraordinarily high, and that should act to keep the euro well supported throughout 2026.”
With separate figures indicating that the euro zone grew more than anticipated in the third quarter, the ECB said the economy was continuing to grow despite the challenging global environment.
“The robust labour market, solid private sector balance sheets and the governing council’s past interest rate cuts remain important sources of resilience,” it said.
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Separate figures from Eurostat on Thursday showed the euro zone economy expanded more than anticipated in the third quarter, displaying resilience to higher US tariffs with France recording its strongest growth in more than two years.
Gross domestic product (GDP) in July, August and September rose 0.2 per cent from the previous three months, up from 0.1 per cent in the second.
France was the main reason behind the positive surprise, reporting a jump of 0.5 per cent in output thanks to trade and domestic demand.
Germany, the region’s largest economy, joined Italy in stagnation with both narrowly avoiding recessions. Data a day earlier showed another strong quarter for Spain, a persistent outperformer.
Ireland’s GDP contracted marginally - by 0.1 per cent - as multinational exports to the US slowed after accelerating in the early part of the year.
Mark Wall, Deutsche Bank’s chief European economist, said: “Economic resilience is keeping the ECB doves in check, and the policy pause on the rails. Where’s the smoking gun for a rate cut? Despite the US tariffs, despite all the various sources of uncertainty, the European economy continues to eke out some growth,” he said.
