European Central Bank holds rates, lifts growth forecasts

(Sharecast News) - The European Central Bank left its benchmark interest rate unchanged on Thursday at 2%, as widely expected. This marked the fourth consecutive meeting in a row that the Bank held rates.

It said in a statement: "The Governing Council is determined to ensure that inflation stabilises at its 2% target in the medium term. It will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance.

"In particular, the Governing Council's interest rate decisions will be based on its assessment of the inflation outlook and the risks surrounding it, in light of the incoming economic and financial data, as well as the dynamics of underlying inflation and the strength of monetary policy transmission. The Governing Council is not pre-committing to a particular rate path."

The ECB also lifted its growth forecasts for the eurozone. It now expects 1.4% growth this year, up from a previous forecast of 1.2%, and 1.2% in 2026, up from a previous forecast of 1%.

Meanwhile, headline inflation is expected to average 2.1% this year, 1.9% in 2026, 1.8% in 2027 and 2.0% in 2028. The slight upward revision was put down to the fact that services inflation is expected to decline more slowly.

ING economist Carsten Brzeski said: "The last ECB rate cut dates back to June this year. Keeping interest rates unchanged for more than half a year now sends a strong signal that it would need a severe downward shift in inflation and growth (expectations) to get the central bank into cutting mode again. In fact, the ECB's so-called 'good place' is simply a neutral monetary policy stance. As noted, the hurdle to moving from neutral to actual easing remains high.

"While the decision to keep interest rates on hold was expected, all eyes were on the fresh round of ECB staff projections. The inflation forecasts, in particular, provide more evidence that the Bank's current 'good place' is also the right place."