Statement by Acting Governor Primož Dolenc following the ECB’s monetary policy meeting

The Governing Council of the ECB decided at yesterday’s meeting to leave its key interest rates unchanged. The interest rate on the deposit facility, which best reflects the monetary policy stance, thus remains at 2.0% for the second consecutive meeting. The decision was made on the basis of the latest data, which shows inflation in the euro area holding close to its 2% medium-term target rate, and the latest projections. These forecast that inflation will fluctuate close to this value over the medium term, while economic growth will remain modest at around 1%. Our next steps will be based on an assessment of the inflation outlook and the risks surrounding it, the dynamics of underlying inflation, and the strength of monetary policy transmission.

According to the projections discussed by the Governing Council at yesterday’s meeting, inflation will average 2.1% this year, before falling to 1.7% next year amid a negative contribution from energy price inflation and a slowdown in core inflation. It will then strengthen to 1.9% in 2027, driven by a slight increase in energy price inflation in connection with the introduction of the new ETS2 emissions trading scheme.

The projections see economic growth in the euro area stalling in the third quarter of this year, but a recovery is expected at the end of the year. Economic growth will reach 1.2% this year, thanks to favourable dynamics in the first quarter, before slowing to 1.0% next year – despite higher current growth – as a result of a less positive carry-over effect. Economic growth will then strengthen to 1.3% in 2027. The rise in economic activity over the projection horizon will mainly be driven by strengthening real household income, increased government investment in defence and infrastructure, and improved financing conditions.

The situation on the financial markets has remained good since the Governing Council’s July meeting. The signing of a trade agreement between the EU and the US has reduced some of the uncertainty, which is being reflected in relatively low volatility. The leading global share indices enjoyed moderate rises, while credit premiums in the private bond market remained low. Yields on euro area government bonds rose slightly, tracking the rise in risk-free interest rates. This reflects investors’ reduced expectations of any further relaxation of monetary policy by the ECB. Spreads between euro area government bonds and the German benchmarks rose slightly, but remain at relatively low levels.

On the basis of this data and the latest projections, the Governing Council decided at yesterday’s meeting to leave the key interest rates unchanged. The interest rate on the deposit facility, which best reflects the monetary policy stance, thus remains at 2.0%. The Governing Council’s future decisions will remain focused on seeing inflation stabilise at its 2% target rate over the medium term. The next steps will be based on an assessment of the inflation outlook and the risks surrounding it, the dynamics of underlying inflation, and the strength of monetary policy transmission. The monetary policy stance will continue to be decided on a meeting-by-meeting basis.