European Central Bank set to hold interest rates amid stable growth, contained inflation
- The European Central Bank is widely anticipated to keep interest rates on hold.
- ECB President Lagarde is likely to reiterate the meeting-by-meeting approach.
- EUR/USD remains stable above 1.1800, with buyers looking to return.
The European Central Bank (ECB) is holding its two-day meeting and will announce its monetary policy decision on Thursday. The ECB is widely expected to keep interest rates on hold for the fifth consecutive meeting, leaving the main refinancing operations, the marginal lending facility, and the deposit facility at 2.15%, 2.4%, and 2%, respectively.
Additionally, ECB President Christine Lagarde will hold a press conference afterward to explain policymakers’ reasoning behind the decision.
Ahead of the announcement, the EUR/USD pair trades above the 1.1800 mark, stabilizing after retracing sharply from January’s peak at 1.2082.
What to expect from the ECB interest rate decision?
The ECB is in a good position and plans to remain there, refraining from any further monetary policy action. The ECB was among the first major central banks to cut rates after post-pandemic inflation peaks that drove multi-decade highs in rates. President Christine Lagarde's latest mantra has been that monetary policy is in a “good place,” and is expected to repeat the message.
The Governing Council decided to keep rates unchanged at its December meeting, offering no fresh clues about future action. As ING noted, “The minutes of the ECB’s December meeting confirm the ECB’s wait-and-see stance in a macro environment, in which the base case looks very benign, but risks remain unusually high.”
In the meantime, macroeconomic data released in the last couple of months confirm officials’ stance. The Euro area economy has not only been resilient but is finally showing signs of improvement.
According to the latest Eurostat data, the European Union (EU) grew by 0.3% quarter-on-quarter in the three months to December, while the 2025 Gross Domestic Product (GDP) grew by 1.6% year-on-year.
In the meantime, inflation cooled down in January, as expected. Eurostat reported that the Harmonized Index of Consumer Prices (HICP) rose 1.7% in the year to January as expected, while easing from the 1.9% posted in December. The core HICP, which excludes volatile components such as food or energy, rose by 2.3% as anticipated, matching the previous month’s figure.
Finally, it is worth remembering that, speaking after the ECB’s final Governing Council meeting, President Lagarde made it clear that, given that monetary policy is in a “good place,” this does not imply a fixed or predictable path for rates. She also emphasised the ECB’s meeting-by-meeting approach.
In this scenario, the upcoming monetary policy decision is likely to be a non-event. The general consensus is that the ECB will maintain its hawkish stance and that President Lagarde will repeat the message that the ECB is in wait-and-see mode, attentive to economic developments without a pre-set monetary path.
How could the ECB meeting impact EUR/USD?
As previously noted, the EUR/USD pair is stable above 1.1800 ahead of the announcement, following volatile price action over the previous two weeks. The EUR/USD pair also trades roughly 300 pips below its recent peak, yet retains most of its 2025 gains.
Valeria Bednarik, FXStreet Chief Analyst, notes: “Technically speaking, the EUR/USD pair bearish case seems well-limited. In the daily chart, the pair holds well above all its moving averages, with a bullish 20-day Simple Moving Average (SMA) heading north above the 100 and 200 SMAs while providing support at around 1.1760. At the same time, technical indicators have picked up after nearing their midlines, presenting uneven upward strength at the time of writing.”
Bednarik adds: “The EUR/USD pair bottomed at around 1.1775 earlier in the week, making the 1.1760-1.1770 area the immediate downward barrier. A slide below the level exposes the 1.1700 threshold, en route to the 1.1640 price zone. Bulls will be looking for a recovery beyond 1.1920 to add longs, aiming for a test of the 1.2000 mark.”
ECB FAQs
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.
Economic Indicator
ECB Press Conference
Following the European Central Bank’s (ECB) economic policy decision, the ECB President gives a press conference regarding monetary policy. The president’s comments may influence the volatility of the Euro (EUR) and determine a short-term positive or negative trend. If the president adopts a hawkish tone it is considered bullish for the EUR, whereas if the tone is dovish the result is usually bearish for the Euro.
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Source: European Central Bank