The European Central Bank (ECB) is expected to keep interest rates unchanged on December 18, with forecasts indicating this stability will extend through 2026. A recent poll of economists conducted by Reuters revealed that the majority anticipate the ECB will maintain its deposit rate at 2 per cent as inflation remains subdued and the euro zone economy demonstrates resilience.
In November, euro zone inflation increased slightly to 2.2 per cent from 2.1 per cent in October, yet it is still well within the ECB’s target of 2 per cent. The economy has shown growth of approximately 1.5 per cent over the past two quarters, providing further justification for the ECB’s decision to avoid adjusting policy rates in the near term.
Comments from ECB Governing Council members suggest a consensus around this approach, with no immediate changes on the horizon. The central bank had previously reduced interest rates by two percentage points by June and has maintained those rates since.
In the latest Reuters poll, all 96 economists surveyed indicated the ECB would hold the deposit rate at 2 per cent in the upcoming meeting. Notably, around 80 per cent of these economists believe rates will remain stable until at least mid-2026, a rise from two-thirds in the previous month’s survey.
Bas van Geffen, a senior macro strategist at Rabobank, stated, “The economy has been more resilient than what we had expected. If you look at inflation, I think they (ECB) don’t really have a reason to adjust rates in December or in the next few meetings as we’re roughly at target.” He also mentioned the possibility of rate cuts if a significant negative shock were to occur, but for now, the risks appear skewed to the downside.
ECB President Christine Lagarde expressed optimism about the economy’s unexpected resilience amid uncertainty and trade tensions, suggesting the central bank might revise its growth forecasts upward in December. However, she reiterated that monetary policy is currently in a “good place.” With growth and inflation figures exceeding expectations, interest rate futures have largely discounted the potential for further easing until at least mid-2026.
Inflation is projected to dip slightly to 2.1 per cent this quarter and further down to 1.7 per cent in the first quarter of 2026, falling below the ECB’s target. Many economists caution that low inflation may lead to the central bank’s next move being a rate cut rather than a hike. An October survey reflected that the euro zone economy is more likely to experience slower growth than previously anticipated over the next year.
Fabio Balboni, a senior European economist at HSBC, noted, “Clear downside risks to growth remain, given some loosening in the labour market and the potential for Germany’s stimulus to disappoint.” He added that while the base case suggests rates will remain on hold throughout next year, the likelihood of cuts in 2026 is significantly higher than for hikes.
The economic outlook indicates growth averaging 1.4 per cent this year and 1.1 per cent in 2026, highlighting the delicate balance the ECB must navigate as it considers its monetary policy in the coming years.
