European Central Bank holds interest rates

The deposit rate was kept at 2pc, as was widely predicted by analysts beforehand. Policymakers continued to offer no guidance on future steps, stressing that they’ll act one meeting at a time based on incoming data.

Fresh forecasts accompanied the decision, envisaging firmer economic expansion and inflation returning to 2pc in 2028 after falling short of that level during the next two years.

The updated assessment “reconfirms that inflation should stabilize at the 2pc target in the medium term,” the ECB said in a statement.

Most ECB officials had already signalled that the inflation undershoot requires no immediate action, with analysts in one poll suggesting borrowing costs could remain where they are through 2027.

That’s not the case everywhere. The Bank of England cut rates earlier in the day after a similar move last week by the Federal Reserve. Both may loosen further next year.

Investors, though, have been discounting the chance of further easing globally and have begun betting on a first increase by the ECB as early as 2026.

The backdrop to this week’s meeting of the ECB governing council is an eurozone economy that looks sturdier than it has in recent months, having maintained expansion through the worst of the trade strife caused by US President Donald Trump’s trade policy and even surpassed expectations in the third quarter.

Business surveys published by S&P Global signal steady momentum in the final months of the year, with fiscal stimulus in Germany to help underpin growth beyond that.

On inflation, officials have signalled they’re ready to accept the prospect of prices growing at less than their targeted pace for some time. Executive Board member Isabel Schnabel has said she wouldn’t be too concerned as long as such deviations are small.

Lithuanian central-bank chief Gediminas Simkus, who’d previously battled to keep the door open to another cut, has also said he no longer sees a need to ease further due to the economy’s surprising strength.

A prolonged pause for rates would cap the loosening cycle at eight cuts. That would be welcomed by Schnabel, who thinks the next move “whenever it comes” will probably be a hike.