The European Central Bank kept interest rates unchanged for a third straight session on Thursday, while giving no indication of its next moves as it enjoys a rare period of low inflation and steady growth, even in the face of turmoil caused by changing trade relations.

The ECB kept interest rates at 2 percent, where they have been since June, but has remained on the doldrums since then, making clear it is in no rush to change policy given that inflation is on target, an ideal point that neither the Federal Reserve, Bank of England, nor Bank of Japan have reached, Reuters notes.

It is recalled that the central bank of Europe started its rate cuts in the summer of 2024 and since then has cut them by a total of 200 basis points. In the last three meetings, however, the bank has kept a wait-and-see attitude.

In its announcement the ECB also reiterated its long-standing commitment that data will continue to guide its moves and that it is not pre-committing to anything, keeping all options on the table.

“Inflation remains close to the medium-term objective of 2% and the Governing Council’s assessment of the inflation outlook is broadly unchanged,” the ECB added in its statement, noting that “the economy continued to grow despite the challenging global environment.”

“The strong labor market, solid private sector balance sheets and the Governing Council’s previous rate cuts remain important sources of resilience,” the ECB added, noting, however, that “the outlook remains uncertain, in particular due to ongoing global trade disputes and geopolitical tensions.”

Some policymakers, however, see a greater risk of lower growth and inflation, justifying further policy easing. Financial investors also share these concerns and estimate there is a 40% to 50% chance of another rate cut by next summer.

The other side argues that Germany’s higher spending on defense and infrastructure fundamentally changes the outlook and will boost growth and prices even without further ECB action.

Today’s decision did not come as a surprise to markets, as all 88 economists polled by Reuters had forecast no change in interest rates this month.

Still, ECB President Christine Lagarde is unlikely to rule out further easing of monetary policy as the ever-changing US tariff regime has yet to fully impact the economy, keeping uncertainty high and raising the risk of inflation falling too far.

Yesterday, Wednesday, the US Federal Reserve (Fed) announced that it cut interest rates by 25 basis points, to a range of 3.75% to 4%, according to analysts’ forecasts. It is noted that this is the second consecutive rate cut this year.

The announcement of the ECB

The Governing Council decided today to keep the ECB’s three key interest rates unchanged. Inflation remains close to the medium-term objective of 2% and the Governing Council’s assessment of the outlook for inflation remains broadly unchanged. The economy continued to grow despite the adverse global environment. A strong labor market, robust private sector balance sheets and previous rate cuts by the Governing Council continue to be important sources of resilience. However, the outlook remains uncertain, mainly due to ongoing global trade conflicts and geopolitical tensions.

The Governing Council is determined to ensure that inflation stabilizes at the 2% target over the medium term. It will take an evidence-based approach and take decisions on a meeting-by-meeting basis to determine the appropriate direction of monetary policy. Specifically, the Governing Council’s interest rate decisions will be based on its assessment of the inflation outlook and the risks surrounding it, in light of incoming economic and financial data, as well as the dynamics of underlying inflation and the intensity with which monetary policy is transmitted. The Board of Directors does not commit in advance to a specific course of interest rates.

Key ECB interest rates

The deposit facility, main refinancing operations and marginal financing facility rates will remain unchanged at 2.00%, 2.15% and 2.40% respectively.

Asset Purchase Program (APP) and Pandemic Emergency Asset Purchase Program (PEPP)

The APP and PEPP portfolios are being reduced at a measured and predictable pace, as the Eurosystem no longer reinvests principal amounts from redeeming securities at maturity.

The Governing Council stands ready to deploy all instruments at its disposal within the limits of its mandate to ensure that inflation stabilizes at the 2% target over the medium term and to safeguard the smooth functioning of the monetary policy transmission mechanism. In addition, the Transmission Protection Instrument (TPI) is available to hedge against undesired, disorderly market developments that pose a serious threat to the transmission of monetary policy across euro area countries, thereby enabling the Governing Council to fulfill its price stability mission more effectively.