The European Central Bank kept its three policy rates unchanged Oct. 29 as ECB President Christine Lagarde warned fiscal uncertainty could raise financing costs and dent confidence, weighing on euro-area consumption and investment.
The deposit facility rate remained at 2.50%, while the main refinancing rate was 2.65% and the marginal lending rate 2.90%, the ECB said. Eurostat's final release put September's annual inflation rate at 3.8%, with August at 3.2%. Energy's annual rate was 18.9%, up from 14.3%.
Lagarde said the Governing Council considered an increase but all members agreed to hold until more information arrived. She cited uncertainty and little change in underlying inflation. She also said average yields on 10-year sovereign debt were roughly 35 basis points higher than at the data cutoff for the ECB's September outlook.
The ECB also described a deterioration in financial conditions since the prior meeting, citing higher rates across markets and falling equity prices. It said monetary policy aims to bring inflation to 2% over the medium term, with rate decisions based on incoming data and made one meeting at a time. The bank has not committed to a preset path, continuing its previously stated approach to rate decisions.
The bank's assessment of available indicators was that the euro-area economy kept expanding during the third quarter, though the GDP figure was still due. The ECB cited investment by businesses in AI and public expenditure on infrastructure and defense as supports for activity.
The ECB said renewed energy price increases had eroded consumer confidence, and judged that energy costs pushed risks toward higher inflation and weaker growth. Higher financing costs were likely to weigh on growth, it added.
The ECB's forward-looking wage tracker indicated negotiated wage growth of 2.5% to 2.8% in the remaining months of 2026, then an average of 2.6% in the first three quarters of 2027. Before the Council's next policy meeting and press conference on Dec. 17, it expects two inflation releases, third-quarter GDP data and new staff projections.
