ECB policy decision: Central bank keeps rates steady at 2% as inflation nears target; debate shifts to timing of next cut

The European Central Bank (ECB) on Thursday held interest rates unchanged at 2%, warning that the eurozone’s economic outlook remained “uncertain” amid global trade disputes and geopolitical tensions.

After a year-long cycle of rate cuts, the ECB has maintained its key deposit rate at two percent since July, with inflation now stabilising around the central bank’s medium-term target, AFP reported.

“Inflation remains close to the two-percent medium-term target and the Governing Council’s assessment of the inflation outlook is broadly unchanged,” the ECB said in a statement.

Officials had signalled little ahead of the meeting to suggest a shift in policy. Jose Luis Escriva, Spain’s central bank chief and a member of the ECB’s governing council, said in an interview with El Diario that the “current level of interest rates is appropriate”.

The meeting took place in Florence as part of the ECB’s regular rotation away from its Frankfurt headquarters, with investors now awaiting President Christine Lagarde ’s press conference for cues on the rate trajectory.

In contrast, the US Federal Reserve has resumed rate cuts, trimming borrowing costs for a second consecutive meeting on Wednesday by a quarter point, reflecting concern over a softening labour market.

Debate grows over next move

While the eurozone economy has fared better than expected — prompting the ECB to raise its growth forecast at its September meeting — policymakers remain divided on whether more rate cuts may be needed in coming months.

The central bank faces headwinds including political uncertainty in France, which has driven up borrowing costs, along with trade risks and signs of slowing wage growth.

Rate-setters appear “split with regard to the balance of risks to inflation and, therefore, on the need for an ‘insurance’ cut over the coming few months,” UniCredit analysts said this week.

Lithuanian governing council member Gediminas Simkus had earlier argued for a cut at the ECB’s next meeting in December. “From a risk-management perspective, it’s better to cut than not,” he told Bloomberg, warning that a strong euro and slowing wages could drag inflation lower.

Andrew Kenningham, economist at Capital Economics, told AFP he expected the ECB to resume cuts in 2026 as both inflation and wage growth weaken. “There are now very few reasons to fear a resurgence of inflation — the economy remains so weak, the labour market is loosening,” he said.