The European Central Bank (ECB) has opted to maintain its current interest rate level, extending its pause on monetary tightening following a Thursday meeting in Frankfurt. The benchmark interest rate will remain at 2.0 percent, alongside unchanged rates for the deposit facility (2.00 percent), main refinancing operations (2.15 percent) and marginal lending facility (2.40 percent).
The decision, while seemingly stable on the surface, is sparking debate regarding the ECB’s perceived lagging response to persistent inflationary pressures. While the bank projects inflation will eventually stabilize around its 2.0 percent target, recent forecasts suggest a potentially drawn-out process. Eurosystem experts now anticipate average overall inflation of 2.1 percent in 2025, 1.9 percent in 2026, 1.8 percent in 2027 and 2.0 percent in 2028. Excluding energy and food, projections estimate 2.4 percent for 2025, 2.2 percent for 2026, 1.9 percent for 2027 and 2.0 percent for 2028.
Notably, the inflation forecast for 2026 has been revised upwards, attributed to a slower anticipated decline in service sector inflation. This adjustment reflects a growing concern among analysts regarding the stickiness of core inflationary drivers. Simultaneously, the ECB has revised upward its growth projections, now forecasting 1.4 percent for 2025, 1.2 percent for 2026 and 1.4 percent for 2027, largely fueled by domestic demand.
While the governing council reiterated its commitment to ensuring medium-term inflation stabilization at 2.0 percent, its cautious approach is drawing scrutiny. Critics argue that the ECB’s data-dependent strategy risks a delayed reaction to potential inflationary resurgences and could ultimately necessitate more aggressive tightening measures later. The bank’s assertion that it will not pre-commit to a specific interest rate path offers flexibility but also introduces uncertainty into the economic landscape, leaving businesses and consumers to navigate a period of monetary policy ambiguity. The ongoing divergence between ECB policy and the actions of other central banks, particularly the Federal Reserve, further complicates the global economic outlook.
