European Central Bank leaves key interest rate unchanged

In view of the reduced risk of inflation, it halved the key rate from four to two percent in several steps from mid-2024 to mid-2025 and has paused since then. Experts do not expect any interest rate increases for the time being, especially since the risk of inflation is considered to be largely averted. However, the ECB is sticking to its mantra of not setting out any interest rate path in advance.

Eurozone inflation recently below two percent

“The determination of the appropriate monetary policy course will depend on the data situation and will take place from meeting to meeting,” the central bank said about the interest rate decision. The ECB is no longer under pressure to act with regard to inflation. The Inflation rate in the euro area In January, at 1.7 percent, it even slipped below the target of 2.0 percent considered ideal for the economy by the ECB. But the strength of the euro against the dollar is disrupting the picture. The central bank already expects that the ECB inflation target will be slightly undercut this year and also in 2027. In doing so, she assumes one Euro exchange rate of 1.16 dollars.

Alarm bells in Frankfurt

At the end of January, however, the European common currency had a short excursion over the $1.20 mark made and thus set off the alarm bells at the ECB headquarters in Frankfurt: Austria’s Council member Martin Kocher even thought out loud about the possibility of a future interest rate cut if the common currency continued to gain momentum.

A strong currency makes exports more expensive and at the same time imports cheaper, which tends to be the case Growth dampens and inflation presses. According to ECB Council member François Villeroy de Galhau, the central bank is closely monitoring the appreciation of the common currency and its possible impact on inflation.

Economists react largely positively

“I rarely praise the ECB. But the ECB is right to leave its deposit rate at 2.0 percent,” commented Jörg Kramerchief economist at Commerzbank. “On the one hand, the economy is growing quite well, which in itself speaks for slightly higher key interest rates. On the other hand, excluding the volatile prices for energy and food, consumer prices have recently increased by less than two percent at an annual rate, which speaks for lower interest rates. The ECB is managing the balance quite well at the moment.”

“European monetary policy remains in calm waters,” adds the chief economist at Dekabank, Ulrich Kateron. “This is also because, fortunately, there is no discussion in the euro area about the independence of the central bank.”