MNI ECB WATCH: Holds, Stresses No Set Rate Path

The European Central Bank as expected held its key deposit interest rate at 2% for a fourth consecutive meeting on Thursday with President Christine Lagarde saying that there was an unanimous view on the Governing Council that there was no set rate path as some data has surprised to the upside.

"We reconfirmed we are in a good place," Lagarde told a news conference, but she added that this did not mean that policy options were static, noting the Governing Council's meeting-by-meeting stance. (See MNI ECB WATCH: Rates On Hold, Eyes On Projections, Language ).

"We simply can't offer forward guidance," she said, stressing the uncertain environment.

Stronger growth could reflect investment related to AI, Lagarde said, adding that the ECB will examine this in more depth in February. Exports are surprising in the upside despite risks surrounding the trade environment.

SERVICES INFLATION

Services inflation and wages also surprised to the upside, even if the GC still expects pay deals to moderate by the end of 2026.

"We believed that all of the catch-up passed. We were surprised, but we must take note. That has been reflected in the projections,” Lagarde said.

Asked about the potential use of Russian frozen assets in Europe to finance Ukraine, Lagarde said the decision was up to political leaders and outside the ECB’s remit so long as it respected rule of law and posed no threat to financial stability.

Eurosystem staff projections showed headline inflation averaging 2.1% in 2025, 1.9% in 2026 (0.2 more than in September), 1.8% in 2027 (0.1 less) and 2.0% in 2028. On core inflation, staff projected an average of 2.4% in 2025, 2.2% in 2026 (0.3 more), 1.9% in 2027 (0.1 more) and 2.0% in 2028. Inflation was revised up for 2026, mainly because staff now expect services inflation to decline more slowly, the ECB's policy statement noted. (see MNI SOURCES: No Significant Shift Seen In ECB Dec Projections )

GDP is seen increasing by 1.4% this year (0.2 percentage points more than in September), 1.2% in 2026 (0.2 more), 1.4% in 2027 (0.1 more) and 1.4% in 2028.