The European Central Bank held interest rates steady Thursday while warning that the continuing energy shock is creating simultaneous upside risks to inflation and downside risks to economic growth.
The ECB kept its deposit rate at 2.50%, the main refinancing rate at 2.65% and the marginal lending rate at 2.90%.
The decision leaves rates unchanged after the central bank raised borrowing costs by 25 basis points in September.
Energy prices are now central to the policy debate. The magnitude and duration of the energy shock could push inflation higher through indirect and second-round effects while simultaneously weakening economic activity.
Financing conditions have also tightened since the previous meeting, creating an additional drag on growth. Underlying inflation has remained broadly stable so far, while wages have not shown a material response to the energy shock.
The central bank reiterated that future decisions will remain data-dependent and meeting-by-meeting and that it is not committing to a predetermined rate path.
Market attention nevertheless shifted immediately toward December as investors assessed whether persistent energy-driven inflation could require another increase.
The decision arrives as the ECB also prepares for a leadership transition following Christine Lagarde’s announcement that she will leave office in February.
The two developments are economically distinct: Lagarde’s departure changes the ECB’s leadership timetable, while Thursday’s rate decision establishes the current policy stance and the conditions governing the next move.
Investors will now watch euro-area inflation, energy prices, wages and bond yields ahead of the December meeting.
