European Central Bank Keeps Interest Rates Unchanged in September

The European Central Bank (ECB) decided this week that three key interest rates will remain unchanged. The deposit facility rate is set at two percent, the rate for main refinancing operations remains at 2.15 percent, and the marginal lending facility rate is at 2.40 percent.

The ECB has thus extended the pause in interest rate cuts in the eurozone into the beginning of autumn, following the July meeting, emphasizing that inflation is currently close to the target of two percent.

In August, consumer prices were 2.1 percent higher than in the same period last year, with the strongest increase in fresh food prices since the beginning of last year. Energy prices, on the other hand, have decreased again, but significantly less than in July.

– The Governing Council has firmly decided to ensure the necessary conditions for medium-term inflation to stabilize at the target level of two percent – the statement reads.

The ECB’s Governing Council has slightly raised its inflation estimate for this year, from two to 2.1 percent. In the following year, prices are expected to rise by an average of 1.7 percent, also slightly stronger than previously forecasted at the beginning of summer. The forecast for 2027 has been slightly lowered, from 2.0 to 1.9 percent.

When excluding food and energy, prices are expected to be 2.4 percent higher on average this year. In 2026, core inflation is expected to significantly weaken to 1.9 percent, and estimates for 2027 indicate it will amount to 1.8 percent. Inflation forecasts still include an unusually high level of uncertainty due to ongoing ‘oscillations in global trade policy’.

Higher tariffs could dampen demand for goods from the eurozone and encourage countries with excess capacity to redirect their products to the area of the common euro currency, highlighting among the inflation brakes a stronger euro.

Inflation could, however, be fueled by overloaded domestic production capacities if the breakdown of global supply chains stimulates demand for imports and increased government spending on defense and infrastructure, they state.

The economy in the area of the common euro currency is expected to grow by 1.2 percent this year, according to new estimates from ECB experts, which is 0.3 percentage points stronger than previously calculated in June.

Economic activity increased in the first quarter more strongly than in the spring months, partly because companies rushed to place orders for goods to preemptively counter the announced tariffs, the ECB notes.

Demand for labor is weakening, but the labor market remains a ‘source of strength’, emphasizes the ECB, pointing to an unemployment rate of 6.2 percent in July. Under such conditions, personal consumption should strengthen over time, ‘especially if people save less, as ECB experts predict’, the report states.

Favorable financing conditions are also expected to boost personal consumption and corporate investments, the bank estimates, following interest rate cuts up to July this year.

Until July, the ECB had been gradually lowering interest rates for almost a year, and this reduction was paused at the last two meetings. Nevertheless, the Governing Council reiterated this week that it will continue to closely monitor data and determine the ‘appropriate’ level of interest rates ‘from meeting to meeting’, especially in the current conditions of pronounced uncertainty. They also emphasized again that they will not commit in advance to a specific direction of monetary policy.