Left all important interest rates unchanged at its December 18, 2025, policy meeting, the European Central Bank kept the deposit facility at 2.00%, main refinancing rate at 2.15%, and marginal lending facility at 2.40%. The Asset Purchase Programme (APP) and Pandemic Emergency Purchase Programme (PEPP) parameters were not altered. Emphasizing a completely data-dependent strategy, President Christine Lagarde stressed that while the Governing Council perceives inflation risks as quite balanced, they remain alert to possible upside pressures.
Citing strong private consumption and a slow relaxation of monetary policy transmission despite challenges from worldwide trade tensions, the ECB modestly raised its projections for Eurozone GDP growth to 0.9% for 2025 (from 0.8%), 1.4% for 2026 (from 1.3%), and 1.5% for 2027 in its most recent staff macroeconomic predictions. With HICP expected at 2.1% in 2025 (unchanged), 1.9% in 2026 (down from 2.0%), and 1.9% in 2027, inflation forecasts were mostly stable. Core inflation is seen moderating to 2.3% in 2025, 2.0% in 2026, and 1.9% in 2027 as wage growth cools.
Lagarde repeated no fixed path for future policy, advising against early easing in light of ongoing services inflation, possible fiscal slippage, and tariff-related hazards. Markets understood the tone to be less dovish than expected, thereby lowering priced-in ECB rate cuts via end-2026 to around 75 basis points from greater pre-meeting expectations, so mirroring increasing confidence in the disinflation process while keeping optionality.


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