ECB Holds Fire: Rates to Stay Until 2027 as Inflation Stabilises

European Central Bank signals long pause in interest‑rate changes amid steady inflation and cautious growth outlook

The European Central Bank building in Frankfurt with euro banknotes, symbolizing stable monetary policy amid steady inflation.

The European Central Bank (ECB) has informed markets that it intends to keep its key interest‑rates unchanged until at least 2027, citing a relatively benign inflation outlook and a modest but steady growth trajectory across the euro‑area economy.

At its latest meeting, the Governing Council reaffirmed that the deposit facility rate, currently at 2.00 %, and the main refinancing and marginal lending facility rates, will remain on hold, given that headline inflation is projected to average 2.1 % in 2025, decline to 1.7 % in 2026 and creep back to 1.9 % in 2027.

Core inflation — excluding food and energy — is forecast at 2.4 % in 2025, then 1.9 % and 1.8 % in the following years.

The decision marks a clear pivot from the aggressive rate‑cutting phase earlier in the year: between June 2024 and June 2025 the ECB trimmed its deposit rate by some 200 basis points. With inflation now orbiting the bank’s medium‑term target of 2 % and growth showing resilience, officials say the monetary‑policy stance is “sufficiently robust” to weather potential shocks.

Calming the heat
In recent months the euro‑area inflation picture has eased into a lower‑volatility environment. Although inflation ticked up slightly to 2.2 % in September 2025, it remains near the ECB’s target. The staff projections issued by the ECB in September indicate growth of 1.2 % in 2025 (up from 0.9 % earlier), then 1.0 % in 2026 and 1.3 % in 2027.

With inflation and growth both tracking close to expectations, the bank sees limited need for further rate cuts — and certainly no urgency to resume hikes. According to a recent Reuters poll, all 88 economists surveyed expect no change at the upcoming 30 October meeting, and over half believe rates will stay unchanged through 2026.

Why the pause now?
Several factors feed into the ECB’s decision to adopt a “steady‑state” policy horizon:

Inflation anchored: With inflation close to the 2 % target and underlying price pressures moderating, the bank judges that the current policy stance is appropriate.
Growth subdued but stable: The euro‑area economy is not booming, but it is growing steadily. The staff’s upward revision to 2025 growth (from 0.9 % to 1.2 %) gives some comfort.
Rate path uncertainty: The bank acknowledges that uncertainty remains — from trade tensions to global growth risks — which makes a cautious, data‑driven approach preferable.
Neutral policy stance?: With rates around 2 %, many analysts argue the ECB may already be at or near a “neutral” level — thus less need to adjust aggressively.

Market implications
The “hold until 2027” message sends a strong signal to markets: expect low volatility in policy rates, barring an unforeseen inflation shock. For investors, this may shift attention away from rate‑moves and toward other drivers — such as bank credit conditions, fiscal policy and external factors like the euro’s strength.

Borrowers and lenders alike may find a more predictable interest‑rate horizon helpful. On the flip side, if growth falters or inflation surges unexpectedly, the ECB’s hands may be forced — but for now, the bias appears firmly towards patience.

The decision also somewhat distances the ECB from the more aggressive rate‑cutting cycle seen in other central banks. For example, U.S. rate‑cut expectations have been more fluid in response to labour‑market weakness. The ECB’s cautious message may therefore increase interest in how the euro behaves against the dollar and other currencies.

Risks on the horizon
Despite the relatively calm outlook, several risk factors remain:

A resurgence in energy or commodity inflation could upset the benign trajectory.
Global trade or geopolitical shocks could slow growth — and with growth already modest, the margin for error is small.
The banking sector remains under pressure (from non‑performing loans and weak profitability), which could dampen credit transmission.
A stronger‑than‑expected euro could increase imported disinflation, complicating the inflation outlook.
These risks underscore why the ECB emphasises a meeting‑by‑meeting, data‑dependent approach.

Bottom line
By indicating that rates will remain unchanged until at least 2027, the ECB is signalling the end — or at least the pause — of an interest‑rate adjustment cycle. With inflation stabilising around target and growth modest but steady, the central bank appears confident in its current stance. Markets will interpret this as a wrap‑up of major policy moves for now — shifting focus instead to other macro drivers and structural issues within the euro‑area economy.