ECB Holds Rates Steady: Lagarde Signals No Rush to Cut Amid Balanced Risks

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.