FRANKFURT: The European Central Bank left interest rates on hold as expected on Thursday, playing down the impact of dollar moves on its future policy choices and stressing that its inflation outlook remained largely unchanged.
The euro zone’s central bank has been on hold since ending a year-long run of rate cuts in June, and surprisingly resilient growth coupled with easing price pressures have taken nearly all pressure off policymakers to provide any further support.
In a statement, the ECB acknowledged continued uncertainties around global trade policy and geopolitical tensions but said an updated assessment still saw inflation stabilising at its 2 percent target in the medium term.
“We are in a broadly balanced situation at the moment,” ECB President Christine Lagarde told a press conference of upside and downside risks to that outlook, reaffirming that monetary policy remained in a “good place”.
Asked what impact on its outlook last week’s dollar tumble and rebound might have, Lagarde said the rate-setting Governing Council had discussed the matter but noted that dollar depreciation was not new and went back as far as March 2025.
“In the last few weeks, in fact since the summer, it has fluctuated in a range,” she said, adding policymakers had therefore concluded that foreign exchange rate moves since last year were “incorporated in our baseline”. A strong euro relative to the dollar lowers import costs, especially for energy, curbing inflation at a time when it is already below target, if only temporarily.
With the dollar dip unwinding in recent days, the euro is actually weaker on a trade-weighted basis than at the ECB’s December meeting, reinforcing market and economist expectations for no interest rate changes in 2026, followed by some policy tightening later in 2027.
Lagarde repeated the bank’s official line that policy would be data-dependent and that it had no pre-determined rate path.
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