{"id":10295,"date":"2025-12-19T13:06:33","date_gmt":"2025-12-19T13:06:33","guid":{"rendered":"https:\/\/readtrends.com\/en\/ecb-rates-inflation-2025\/"},"modified":"2025-12-19T13:06:33","modified_gmt":"2025-12-19T13:06:33","slug":"ecb-rates-inflation-2025","status":"publish","type":"post","link":"https:\/\/readtrends.com\/en\/ecb-rates-inflation-2025\/","title":{"rendered":"Monetary policy statement (with Q&A) – European Central Bank"},"content":{"rendered":"
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Lead<\/strong><\/p>\n

Frankfurt am Main, 18 December 2025 \u2014 ECB President Christine Lagarde and Vice\u2011President Luis de Guindos told markets today the Governing Council will leave the three key interest rates unchanged while reaffirming the objective to stabilise inflation at 2% in the medium term. Eurosystem staff projections show headline inflation averaging 2.1% in 2025, 1.9% in 2026, 1.8% in 2027 and 2.0% in 2028, with inflation excluding energy and food projected at 2.4% in 2025 and returning to about 2.0% by 2028. Growth forecasts were upgraded \u2014 notably domestic demand and investment \u2014 and the Council stressed a meeting\u2011by\u2011meeting, data\u2011dependent approach with no pre\u2011committed rate path.<\/p>\n

Key takeaways<\/h2>\n
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  • The Governing Council kept all three key ECB interest rates unchanged at the 18 December 2025 meeting, maintaining a data\u2011dependent stance.<\/li>\n
  • Eurosystem staff project headline inflation at 2.1% (2025), 1.9% (2026), 1.8% (2027) and 2.0% (2028); core inflation (ex. energy and food) is 2.4% in 2025, easing to ~2.0% by 2028.<\/li>\n
  • Growth forecasts were revised up to 1.4% in 2025, 1.2% in 2026, 1.4% in 2027 and 1.4% in 2028, driven primarily by domestic demand and higher business investment.<\/li>\n
  • Labour market remains tight: unemployment was 6.4% in October 2025 and employment rose 0.2% in Q3; compensation per employee rose about 4% year\u2011on\u2011year in Q3.<\/li>\n
  • Services inflation has been strong (3.5% in November), offsetting weaker goods inflation; wage developments are a key upside risk for services inflation.<\/li>\n
  • Risks are two\u2011sided: geopolitical tensions, trade shifts and financial\u2011market repricing could lower activity and inflation, while defence\/infrastructure spending and persistent wage pressures could push inflation higher.<\/li>\n
  • Euro area banks are assessed as resilient with solid capital and liquidity metrics, but macroprudential tools remain the first line of defence against financial vulnerabilities.<\/li>\n<\/ul>\n

    Background<\/h2>\n

    Since the spring of 2025 annual inflation has moved in a narrow band and stood at 2.1% in November. The Governing Council has been navigating a context of moderating energy price contributions, persistent services inflation and an economy that has shown unexpected resilience. The staff projections incorporate a one\u2011year shift in the expected start of the EU Emissions Trading System 2 (ETS2) effect, now assumed to begin in 2028 rather than 2027, which influences projected energy inflation later in the horizon.<\/p>\n

    The euro\u2011area expansion in recent quarters has been services\u2011led, with stronger consumption, investment and a notable export contribution \u2014 chemicals and activity linked to Ireland were singled out. The ECB notes previous policy rate cuts over the prior year fed through to market rates and lending rates, and that the transmission of policy continues to be monitored closely as part of the assessment of appropriate stance.<\/p>\n

    Main event<\/h2>\n

    At the press conference in Frankfurt on 18 December 2025 President Lagarde explained the unanimous Governing Council decision to hold rates and to remain fully data dependent. The Council reiterated that interest\u2011rate choices will be guided by the inflation outlook, the balance of risks and incoming economic and financial information, and emphasised it is not committing to any predetermined path for future rates.<\/p>\n

    The Eurosystem staff projections underpinning the decision show headline inflation easing below 2% on average in 2026\u201327, largely because past energy shocks drop out of annual rates, before returning to target in 2028 when energy inflation is expected to pick up. Core inflation (ex. energy and food) remains elevated in the near term but is projected to fall toward 2% by the end of the horizon.<\/p>\n

    On activity, the ECB highlighted 0.3% growth in Q3 2025, driven by stronger consumption and investment, with exports making a larger than expected contribution. The labour market is described as robust \u2014 unemployment at 6.4% in October and employment rising 0.2% in Q3 \u2014 while job vacancies have cooled, indicating easing labour demand.<\/p>\n

    Lagarde and Vice\u2011President de Guindos also addressed policy instruments beyond rates, underlining readiness to adjust all tools within the ECB mandate to secure price stability and to ensure smooth transmission. They flagged ongoing monitoring of transmission channels, wage dynamics and financial conditions as central to forthcoming decisions.<\/p>\n

    Analysis & implications<\/h2>\n

    The upgraded growth profile \u2014 with 1.4% pencilled in for 2025 and 2027 \u2014 shifts the policy trade\u2011off slightly. Stronger domestic demand and higher investment, partly attributed to private\u2011sector adoption of AI and intangible capital spending, raise potential growth and may temper disinflationary forces. If such investment proves persistent, it could support productivity and possibly gradual upward pressure on a long\u2011run neutral rate, though r* remains unobserved and highly uncertain in the current environment.<\/p>\n

    Services inflation and wage dynamics are the principal near\u2011term concerns for the Governing Council. Services inflation rose to 3.5% in November, and compensation per employee grew 4% year\u2011on\u2011year in Q3, partly reflecting special payments above negotiated wages. The staff expect wage growth to decelerate and to be somewhat below 3% by late 2026, but a slower normalisation of wages would delay the fall in services inflation.<\/p>\n

    Energy and ETS2 timing materially affect the horizon. A later start of ETS2 (now expected in 2028) reduces its near\u2011term upward pressure on prices but raises the chance of an energy\u2011led pickup in 2028. That pattern highlights the asymmetry policy makers face: near\u2011term disinflation driven by energy base effects versus medium\u2011term upside if carbon\u2011price pass\u2011through and fiscal spending push demand.<\/p>\n

    Financial conditions have tightened modestly since the last meeting, with market rates higher but bank lending rates for firms broadly stable (3.5% in October). The ECB’s dual focus on monetary policy and financial stability means macroprudential measures will remain central to prevent the build\u2011up of vulnerabilities, especially if unexpected market repricing occurs.<\/p>\n

    Comparison & data<\/h2>\n
    \n\n\n\n\n\n\n\n\n
    Year<\/th>\nHeadline inflation<\/th>\nInflation ex. energy & food<\/th>\nReal GDP growth<\/th>\n<\/tr>\n<\/thead>\n
    2025<\/td>\n2.1%<\/td>\n2.4%<\/td>\n1.4%<\/td>\n<\/tr>\n
    2026<\/td>\n1.9%<\/td>\n2.2%<\/td>\n1.2%<\/td>\n<\/tr>\n
    2027<\/td>\n1.8%<\/td>\n1.9%<\/td>\n1.4%<\/td>\n<\/tr>\n
    2028<\/td>\n2.0%<\/td>\n2.0%<\/td>\n1.4%<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/figure>\n

    The table summarises the Eurosystem staff central projections published with the statement. The pattern shows headline inflation dipping below 2% in 2026\u201327 before returning to target in 2028, while core inflation converges toward 2% and growth stabilises around 1.2\u20131.4% across the projection horizon. These numbers frame the Council\u2019s cautious, data\u2011driven stance: short\u2011term disinflation is balanced against medium\u2011term upside risks from wages, fiscal\/investment plans and energy\u2011related price shifts.<\/p>\n

    Reactions & quotes<\/h2>\n
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    We are determined to ensure that inflation stabilises at our two per cent target in the medium term and will act meeting\u2011by\u2011meeting on the basis of incoming data.<\/p>\n

    Christine Lagarde, ECB President (press conference, 18 Dec 2025)<\/cite><\/p><\/blockquote>\n

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    All optionalities remain on the table; there was unanimous support to keep rates unchanged today while monitoring transmission and underlying inflation dynamics.<\/p>\n

    Luis de Guindos, ECB Vice\u2011President (press conference, 18 Dec 2025)<\/cite><\/p><\/blockquote>\n

    \n

    Eurosystem staff project headline inflation averaging 2.1% in 2025, easing to 1.9% in 2026 and returning to 2.0% in 2028, with investment and domestic demand supporting growth.<\/p>\n

    Eurosystem staff projections (ECB)<\/cite><\/p><\/blockquote>\n

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