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December 18, 2025EUROPEAN CENTRAL BANK MONETARY POLICY The European Central Bank (ECB) announced today that it would leave the three key ECB interest rates unchanged. The interest rates on the deposit facility, main refinancing operations and the marginal lending facility will remain at 2.0%, 2.15%, 2.4% respectively.
The European economy grew by 0.3% in the third quarter of 2025 driven by stronger consumption and investment. Domestic demand is expected to be the main driver of growth over the projection period. The ECB notes that the challenging global trade environment is expected to remain a drag on growth this year and next. Growth is expected to be 1.4% in 2025, 1.2% in 2026, and 1.4% in 2027.
The unemployment rate was at 6.4% in October, close to historical lows and ECB notes that demand for labour has cooled. The unemployment rate is projected to be 6.3% in 2025, 6.2% in 2026 and 6.1% in 2027. The ECB staff project employment to grow 0.7% in 2025, 0.6% in 2026 and 0.5% in 2027 and 2028.
Inflation (HICP) increased 2.1% in November due to a slower decline in energy prices. Energy price inflation was -0.5% in November and food price inflation eased to 2.4%. ECB states that inflation indicators of underlying inflation remain consistent with their 2% medium-term target. ECB staff estimate inflation to average 2.1% in 2025, 1.9% in 2026, and 1.8% in 2027.
The asset purchase programme (APP) and Pandemic Emergency Purchase Programme (PEPP) portfolios are declining at a measured and predictable pace, as the Eurosystem no longer reinvests principal payments from maturing securities.
The Governing Council notes it is determined to see inflation stabilise at its 2.0% medium-term target. The Transmission Protection Instrument is also available to counter unwarranted, disorderly market dynamics that pose a serious threat to the transmission of monetary policy across all euro area countries, thus allowing the Governing Council to more effectively deliver on its price stability mandate.
The next scheduled monetary policy meeting will be on February 4-5, 2026.
Source: European Central Bank:Monetary policy decisions (Press Release); Press Conference; Macroeconomic Projections (December)