ECB Holds Rates Steady
Amid Upward Revisions to Growth and Inflation Outlook
Frankfurt, 18 December 2025 — The European Central Bank (ECB) Governing Council today decided to keep the three key ECB interest rates unchanged, reaffirming its assessment that inflation should stabilise at the 2% medium-term target. The interest rate on the deposit facility will remain at 2.00%, the main refinancing operations rate at 2.15%, and the marginal lending facility rate at 2.40%.
The decision follows the release of updated Eurosystem staff projections, which showed significant revisions to both the inflation and growth outlook.
Revised Economic Projections
Inflation: Headline inflation is projected to average 2.1% in 2025, 1.9% in 2026, 1.8% in 2027, and return to 2.0% in 2028. Similarly, inflation excluding energy and food is projected to average 2.4% in 2025, 2.2% in 2026, 1.9% in 2027, and 2.0% in 2028.
Inflation projections were revised up for 2026 primarily because staff now anticipate services inflation will decline more slowly than previously expected. Services inflation has shown an upward trajectory, rising from 3.2% in September to 3.5% in November. This is largely linked to higher-than-anticipated wage growth; compensation per employee rose at an annual rate of 4.0%, exceeding September staff projections.
Staff expect inflation to stay below 2% on average in 2026 and 2027 before returning to the 2% target in 2028, partly due to the projected upward effect on inflation from the EU Emissions Trading System 2, expected to start that year.
Growth: Economic growth expectations were also revised upward compared to the September forecasts. Growth is now projected to reach 1.4% in 2025, 1.2% in 2026, and 1.4% in both 2027 and 2028. This stronger growth outlook is driven especially by domestic demand, supported by rising real incomes and gradual reductions in the saving rate.
Recent economic activity has been resilient, with growth of 0.3% in the third quarter driven mainly by stronger consumption and investment. Growth has been services-led, but investment by both the public and private sector has been a key driver, with corporate investment often attributed to the development of Artificial Intelligence (AI).
Policy Instruments and Future Stance
The Governing Council reiterated its determination to ensure that inflation stabilises at the 2% target in the medium term. Future monetary policy will follow a data-dependent and meeting-by-meeting approach. Interest rate decisions will be based on the assessment of the inflation outlook, incoming economic and financial data, the dynamics of underlying inflation, and the strength of monetary policy transmission. The Council stressed that it is not pre-committing to a particular rate path.
Regarding asset purchasing programmes, the portfolios for the Asset Purchase Programme (APP) and the Pandemic Emergency Purchase Programme (PEPP) are declining at a measured and predictable pace, as the Eurosystem has ceased reinvesting the principal payments from maturing securities.
The Council remains ready to adjust all its instruments within its mandate to ensure stable inflation and preserve smooth monetary policy transmission. The Transmission Protection Instrument (TPI) is available to counter unwarranted, disorderly market dynamics that seriously threaten policy transmission across all euro area countries.