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 third 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. Our next steps will continue to 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 data available at the time of the latest Governing Council meeting, inflation in the euro area stays close to its target rate, while economic activity remains relatively resilient to the shocks in the international environment. Inflation in the euro area stood at 2.2% in September, up only slightly on the previous month. Meanwhile core inflation was slightly higher at 2.4%, but the anticipated ongoing slowdown in wage growth suggests that it is likely to fall over the medium term. The euro area economy slightly outperformed expectations in the third quarter: GDP was up 0.2% on the previous quarter in real terms. According to the available monthly data, services were the main driver of the economic expansion, while activity in manufacturing remained under the influence of higher tariffs, uncertainty, and worsening competitiveness. The PMIs meanwhile point to a relatively favourable situation in the early part of the final quarter of this year: October’s PMI shows stronger growth in activity in manufacturing and services alike.
The situation on the financial markets has remained good since the Governing Council’s September meeting. The temporary renewed worsening of trade tensions between the US and China, and the release of slightly poorer macroeconomic data in the euro area drove a fall in global yields and yields on euro area government bonds. Volatility on the government bond market remained very low in historical terms. This helped to maintain low credit premiums in the private bonds segment in the euro area, which have risen only moderately since the Governing Council’s September meeting. Investors in the equity market also remain in a positive mood, and the leading global share indices have risen. The markets are expecting the ECB’s key interest rates to remain at their current levels for some time.
On the basis of this data, the Governing Council decided at yesterday’s meeting to once again 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.
In addition to the monetary policy meeting, a discussion of the digital euro project was also held on this occasion. The decision was taken to move the project into the next phase following the successful completion of the preparation phase. The next phase will aim to ensure technical readiness for the potential first issuance of a digital euro. The Governing Council’s final decision on whether to issue a digital euro is waiting for the adoption of the relevant European legislation. If legislation is adopted in the course of 2026, a pilot exercise could start in 2027, and the Eurosystem should be ready for the potential first issuance of the digital euro in 2029.