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ECB to go into hibernation

In Short

ECB kept key rate unchanged today: Quite unspectacularly, at today’s meeting the GC left its key rate, the deposit rate, at 2.00% for the third consecutive time. The principal payments of APP and PEPP purchases are no longer reinvested. A better growth outlook….: Over the past months activity data surprised on the upside with GDP growth above September projections and sentiment indicators like the PMIs signalling a further strengthening. Inflation data came in above previous projection expectation too. The updated staff projections reflect this improved macro-outlook.

Highlights

  • At today’s meeting the ECB’s Governing Council (GC) unanimously and unsurprisingly decided to keep its key rate unchanged at 2.0%. 
  • The macro projections, extended to 2028 show a less pronounced inflation undershooting in 2026 (1.9% vs 1.7%), an unchanged 2027 number (1.9%) but convergence towards target by 2028 with core inflation being revised up by cumulatively 0.5 pp in 2026/27. A key reason was stronger wage dynamics.  
  • The growth projections were increased by cumulatively 0.5 pp for 2025-27and set at 1.4% in 2028 with domestic activity being the main engine of growth. 
  • While the policy implications of the macro-outlook clearly became more hawkish, President Lagarde reconfirmed that the ECB was “in a good place” and that neither cuts nor hikes were discussed at the meeting. Yet all options should be on the table. 
  • We feel confirmed in our view that the ECB maintains a wait-and-see stance and goes into hibernation at 2.0%.  

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ECB to go into hibernation
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