The European Central Bank (ECB) held interest rates steady during its September 2025 meeting, stating that they are going to take a data–driven approach to try to maintain inflation at a target of 2%. This decision was expected, leaving the deposit facility at 2%, the main refinancing operations at 2.15% and the marginal lending facility at 2.40%. This is the second meeting in a row that the ECB has kept rates, which was a result of the June meeting, where the deposit facility rate was cut.
Very little certainty about inflation due to international trade and geopolitical situations
In the official statement, the ECB noted that it is not pre-committing to a particular rate path. This statement is a result of continuously changing and sometimes volatile inflation, eurozone economic growth, and monetary transmission, which the ECB has to reconsider for each meeting. Christine Lagarde, President of the ECB, emphasized this in her press conference.
The ECB staff also gave their projections, which indicate that headline inflation will average around:
- 2.1% in 2025
- Easing to 1.7% in 2026
- 1.9% in 2027
- 2.0% in 2028
Core inflation, which excludes energy and food, is expected to average:
- 2.4% in 2025
- Easing to 1.9% in 2026
- 1.8% in 2027
- 1.7% in 2028
In terms of the economic growth forecast for the euro area, it is expected to grow 1.2% in 2025, which is an increase from a forecast of 0.9% in June, but 2026 is expected to slow to 1.0% and 2027 is expected to have a modest recovery at 1.3% growth.
In a statement to the press, Lagarde acknowledged that the risks to economic growth have become ‘more balanced.’ However, renewed trade tensions, particularly between the EU and the U.S., could have possible negative effects on exports and investment. The recent 15% blanket tariffs on EU exports to the U.S. and threats of further tariffs have heightened this uncertainty for stakeholders.
“While recent trade agreements have reduced uncertainty, a renewed worsening of trade relations could further dampen exports and drag down investment and consumption”
Market participants and analysts have different views on the expected rates
With the ECB expected to hold rates, it was a ‘largely priced in’ event with a near 99% probability from market participants, which shows confidence in the ECB’s cautious approach.
RSM UK and Ireland’s chief economist Thomas Pugh suggested that the ECB “is in no hurry to reduce rates further,” but left the door open to another cut later this year if weak demand and trade hurdles persist. In contrast, a eurozone economist at Schroders, Irene Lauro, expressed that the eurozone’s easing cycle has ended. Lauro explained that weak trade uncertainty and strong domestic demand enable the ECB to continue being positioned. She stated, alluding to fiscal instability in France:
“The risks for the eurozone shifted from trade uncertainty to political instability,”
Purchase program’s portfolios are still declining
The ECB, along with the asset purchase program, confirmed that the pandemic emergency purchase program’s (PEPP) portfolios are still declining at a pace that allows for no sustained period of maturing security reinvestments. The Central Bank’s use of the Transmission Protection Instrument remains available to combat uncontrolled market dynamics that will threaten monetary policy transmission across the euro area, and this remains available.
Trade agreements have closed some uncertainty, but the environment still remains unclear and will likely still not reach a “normal level” that is referenced to the pre-COVID period of trade.
The ECB’s September decision proves that the ECB is still data-driven while methodically evaluating the market’s complex economic landscape. The central bank balances the risks of maintaining price stability with supporting sluggish growth. As Lagarde noted, the bank is focused on maintaining inflation at the central bank target of two percent “in the medium term.”