ECB keeps interest rates on hold at 2%

The European Central Bank (ECB) left interest rates unchanged for the third time in a row on Thursday, as widely expected, as the eurozone economy proves resilient to tariff shocks with low inflation and steady growth. The main policy remained at 2%, while its deposit rate was on hold at 2.15%.

The central bank has cut rates by a combined two percentage points in the year to June, and had eight rate cuts since mid-2024, but has been on hold since as inflation has been around target. Financial markets are now betting on an extended pause well into 2026.

Charles Seville, senior director in Fitch Ratings’ economics team, said: "We expect inflation to fall below target in 2026, but as per Philip Lane’s speech earlier this month, in a more shock-prone world the ECB seems less inclined to try to fine-tune its stance."

ECB officials gathered in Florence, Italy, on Thursday on one of their regular tours away from the central bank's Frankfurt headquarters.

In September, eurozone inflation overall ticked up to 2.2% year-on-year but slightly below expectations, while core inflation rose 2.3% year over year in September, the latest Eurostat data showed.

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It comes as the eurozone economy grew faster than expected in the third quarter, when compared to the previous three months.

The EU's data agency said the 20-country single currency area recorded growth of 0.2% over the July to September period, slightly ahead of expectations of 0.1%, offering a glimmer of resilience after months of sluggish momentum.

Year-on-year, eurozone growth slowed to 1.3% from 1.5%, though it still came in slightly above the 1.2% economists had predicted. The broader European Union fared marginally better, expanding by 0.3% on the quarter and 1.5% from a year earlier

Among countries with available data, Portugal emerged as the top performer within the eurozone, with GDP rising by 0.8% on the quarter — driven by resilient domestic demand and tourism.

France reported a 0.5% rise in output despite political turmoil in Europe's second-largest economy. It was its strongest growth in more than two years, driven by trade and domestic demand. Meanwhile, Germany narrowly avoided recession following a 0.2% contraction in the second quarter, driven by falling exports amid higher US trade tariffs.

In the wider EU, Sweden led the scoreboard with 1.1% growth, followed by Czechia at 0.7%. At the other end of the spectrum, Lithuania contracted by 0.2%, while Ireland and Finland both posted 0.1% declines.

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