Instant view: ECB holds rates steady at 2%, lowers inflation forecasts

The European Central Bank (ECB) kept its interest rates unchanged at 2% on Thursday, in line with market expectations. However, the bank gave no strong hints about future policy steps, even as investors speculate that additional monetary support may be needed in the coming months.

Updated Inflation Outlook

Fresh ECB projections revealed that inflation is expected to fall below target levels in the years ahead. Headline inflation is forecast at 1.9% in 2027, lower than the 2.0% predicted in June. Meanwhile, core inflation is projected to be around 1.8%, also missing the ECB’s 2% goal.

Market Reaction

The euro initially dipped after the announcement but later recovered, trading 0.3% higher at $1.1728. In bond markets, short-dated yields, which are highly sensitive to interest rate moves, climbed 3 basis points to 1.985%.

On the equity side, Europe’s STOXX index gained 0.3%, reflecting cautious optimism among investors despite the ECB’s muted guidance. Traders continue to weigh whether slowing inflation will prompt the central bank to adopt a more accommodative stance in the near future.

Uncertainty Ahead

With inflation expected to remain below the ECB’s target, analysts suggest that policymakers may face growing pressure to adjust monetary policy in 2026 and beyond. For now, however, the bank appears committed to holding steady as it monitors economic conditions across the eurozone.