ECB keeps deposit rate at 2.50%, saying the energy shock lifts inflation and lowers growth

The European Central Bank (ECB) kept its three key interest rates unchanged on Thursday, with the deposit facility rate staying at 2.50%, according to its monetary policy decisions. It said energy prices have continued to rise, which raises risks to inflation and to growth.

What happened

The Governing Council left the rates on the deposit facility, the main refinancing operations and the marginal lending facility at 2.50%, 2.65% and 2.90%, the ECB said. The decision was published ahead of a press conference by ECB President Christine Lagarde that was due to start at 2:45 p.m. CET.

The ECB said that "energy prices have continued to rise, posing upside risks to the inflation outlook and downside risks to the growth outlook." It added that "underlying inflation has remained broadly stable so far and wages do not show a material response at this stage," and that the increased size and length of the energy shock "are likely to drive up inflation and lower growth."

The statement also said that "financing conditions have tightened since the Governing Council's last meeting, which is likely to weigh on inflation and growth."

The Governing Council repeated that it will follow a data-dependent, meeting-by-meeting approach and that it "is not pre-committing to a particular rate path." Its rate decisions will rest on the inflation outlook and the risks around it, the strength of monetary policy transmission and the dynamics of underlying inflation, which strips out the most volatile prices.

The ECB also said its bond portfolios from the asset purchase programme and the pandemic emergency purchase programme are declining at a measured and predictable pace, because the Eurosystem no longer reinvests the principal of maturing securities.

The background

The hold follows a 25 basis point increase at the previous monetary policy meeting. On September 10 the Governing Council raised all three rates by that amount, to the same 2.50%, 2.65% and 2.90%, with effect from September 16, the ECB said. It cited inflation pressures from the conflict in the Middle East.

The September decision came with new staff projections. They put headline inflation at an average of 3.0% in 2026, 2.5% in 2027 and 2.1% in 2028, and economic growth at 0.9% in 2026, 1.4% in 2027 and 1.5% in 2028. The ECB said the growth projection for 2026 and 2027 had been revised up, mainly because the euro area economy was more resilient than expected.

Inflation has moved in the direction the ECB describes. Eurostat's final estimate showed that the euro area annual inflation rate was 3.8% in September, up from 3.2% in August, against 2.2% a year earlier, according to Eurostat. Energy contributed 1.71 percentage points to the September rate, more than any other component, and services contributed 1.52 percentage points.

FinanceInTime previewed the meeting when the deposit rate stood at 2.50%, in its October 23 report.

What to watch

The ECB's next monetary policy meeting is on December 16-17, with a press conference after the second day, according to the ECB's calendar of Governing Council meetings. The ECB said it will base each decision on incoming data and has not committed to a path.

Staff projections published with the September decision showed a wide range of outcomes depending on how intense and long-lasting the energy shock proves, the ECB said. The ECB gave no signal on the direction of its next move.