FRANKFURT, Dec. 20 (Xinhua) -- The European Central Bank (ECB) announced on Thursday that it will keep interest rates steady, citing signs of an improving economic outlook for the euro area.
This marks the fourth consecutive time the ECB has opted to hold interest rates unchanged, following its last rate cut in June, when it reduced the benchmark deposit facility rate to 2 percent.
INFLATION SET TO STABILIZE AT TARGET
Inflation in the euro area remained stable at 2.1 percent in November, according to the EU's statistical office. The past 11 months saw narrow movements of inflation, which, according to the latest estimate by the ECB, is expected to average 2.1 percent this year.
This inflation figure, close to the ECB's medium-term target of 2 percent, is one of the reasons the bank believes it is "in a good position."
Prices in the euro area began rising sharply in late 2021, with inflation reaching a record high of 10.6 percent in October 2022. In response, the ECB initiated one of the most aggressive rate hike cycles in history, increasing rates by a total of 450 basis points over just more than a year, starting in July 2022.
Interest rates were held at historic highs until June 2024, when the ECB decided to ease restrictions. The bank cut rates by a total of 200 basis points in the easing cycle, which came to a halt in June of this year.
According to the "updated assessment," the ECB expects inflation to stabilize around the 2 percent target in the medium term. In its latest staff projections, the ECB forecasts inflation to average 1.9 percent in 2026, 1.8 percent in 2027, and 2 percent in 2028.
ECB President Christine Lagarde told a press conference on Thursday that "we reconfirmed that we are in a good place."
ECONOMY SHOWS SIGNS OF RESILIENCE
The euro area economy grew by 0.3 percent in the third quarter, surpassing expectations due to "stronger consumption and investment."
Exports also increased in the third quarter, as exporters in the EU weathered the U.S. tariffs headwinds better than expected.
The euro area's economy has been buoyed by "a robust labour market," with the unemployment rate near a historical low of 6.4 percent in October.
Industrial production in the euro area surged by 0.8 percent in October, up from 0.2 percent in September, a sign that the industrial recovery is gaining pace.
"The economy has been resilient," the ECB said in a statement. "This pattern of services-led growth is likely to continue in the near term."
The ECB has revised up its projections for economic growth to 1.4 percent in 2025, 1.2 percent in 2026 and 1.4 percent in 2027.
RATES LIKELY TO REMAIN UNCHANGED
With inflation hovering around its target and the economy "growing close to its potential," Shaan Raithatha, Senior Economist at Vanguard, expects the ECB to maintain its current interest rate stance through 2026.
The economic recovery in the euro area will accelerate in 2026, excluding volatile national accounts in Ireland, according to an Allianz report published on Wednesday.
Given that the ECB continues to be in a good position, economists, including Carsten Brzeski, global head of Marco at ING bank, believe the central bank has set a high bar for any future rate changes.
Brzeski interpreted the ECB's "good place" as a "neutral monetary policy stance" in a note published Thursday, suggesting that only a significant downturn in inflation and growth expectations would justify another rate cut.
"With inflation expected to be at or slightly below 2 percent and growth expected to be around potential, there is no reason for the central bank to change its policy stance any time soon, either to the upside or the downside," Brzeski said.
Meanwhile, the ECB reaffirmed that it is not preemptively setting a rate path, and reiterated that its monetary policy decisions will remain data-dependent and made on a meeting-by-meeting basis.
Being in a good place "does not mean that we are static," said Lagarde at the press conference. ■
