The European Central Bank left its key interest rates unchanged on 29 October 2026, holding the deposit facility at 2.50% as it said the energy shock’s increased magnitude and duration are likely to drive up inflation and lower growth.
The Governing Council said energy prices have continued to rise, posing upside risks to the inflation outlook and downside risks to the growth outlook. While the full effects of the energy shock are still unfolding, underlying inflation has remained broadly stable so far and wages do not show a material response at this stage. The increased magnitude and duration of the energy shock, as well as the implications for indirect and second-round effects, are likely to drive up inflation and lower growth, the ECB said.
Financing conditions have tightened since the Governing Council’s last meeting, which is likely to weigh on inflation and growth. The ECB said it was committed to setting monetary policy to ensure that inflation stabilises at its 2% target in the medium term.
The central bank said it would follow a data-dependent and meeting-by-meeting approach, and is not pre-committing to a particular rate path. The asset purchase programme and pandemic emergency purchase programme portfolios are declining at a measured and predictable pace, as the Eurosystem no longer reinvests principal payments from maturing securities.
The ECB also noted that the Transmission Protection Instrument is available to counter unwarranted, disorderly market dynamics that pose a serious threat to the transmission of monetary policy across the euro area.
Analysis
Why This Matters
- The ECB's decision reflects the challenge of balancing inflation and growth amid an energy price shock that could worsen.
- Interest rates remain at relatively high levels for borrowers and businesses, affecting investment and consumption across the euro area.
- The data-dependent approach means future moves will hinge on incoming economic data, keeping markets in suspense.
Background
The European Central Bank is responsible for monetary policy in the 20-nation euro area with a mandate to maintain price stability, targeting 2% inflation over the medium term. At this meeting, it held the deposit facility rate at 2.50%, the main refinancing rate at 2.65%, and the marginal lending rate at 2.90%.
What to Watch
- The trajectory of energy prices and their pass-through to broader inflation and growth.
- Upcoming economic data, particularly on underlying inflation and wage dynamics.
- The ECB's next meeting for any shift in the assessment of inflation risks or the rate path.
Checked
11 claims in this story checked against 1 source: 11 supported.
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- SupportedThe ECB held interest rates steady as the energy shock clouded the outlook.ECB - European Central Bank: “The Governing Council today decided to keep the three key ECB interest rates unchanged. Energy prices have continued to rise, posing upside risks to the inflation outlook and downside risks to the growth outlook.”
- SupportedThe deposit rate stayed at 2.50%.ECB - European Central Bank: “The interest rates on the deposit facility, the main refinancing operations and the marginal lending facility will remain unchanged at 2.50%, 2.65% and 2.90% respectively.”
- SupportedThe ECB said rising energy prices pose upside risks to inflation and downside risks to growth.ECB - European Central Bank: “Energy prices have continued to rise, posing upside risks to the inflation outlook and downside risks to the growth outlook.”
- SupportedThe ECB said the energy shock’s increased magnitude and duration are likely to drive up inflation and lower growth.ECB - European Central Bank: “The increased magnitude and duration of the energy shock, as well as the implications for indirect and second-round effects, are likely to drive up inflation and lower growth.”
- SupportedThe ECB left its key interest rates unchanged on 29 October 2026.ECB - European Central Bank: “Monetary policy decisions 29 October 2026 The Governing Council today decided to keep the three key ECB interest rates unchanged.”
- SupportedThe full effects of the energy shock are still unfolding, while underlying inflation has remained broadly stable and wages show no material response so far.ECB - European Central Bank: “While the full effects of the energy shock are still unfolding, underlying inflation has remained broadly stable so far and wages do not show a material response at this stage.”
- SupportedFinancing conditions have tightened since the Governing Council’s last meeting, which is likely to weigh on inflation and growth.ECB - European Central Bank: “Financing conditions have tightened since the Governing Council’s last meeting, which is likely to weigh on inflation and growth.”
- SupportedThe Governing Council is committed to ensuring inflation stabilises at its 2% target in the medium term.ECB - European Central Bank: “The Governing Council is committed to setting monetary policy to ensure that inflation stabilises at its 2% target in the medium term.”
- SupportedThe ECB will use a data-dependent, meeting-by-meeting approach and is not pre-committing to a particular rate path.ECB - European Central Bank: “It will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance. [...] The Governing Council is not pre-committing to a particular rate path.”
- SupportedThe APP and PEPP portfolios are declining at a measured and predictable pace because the Eurosystem no longer reinvests principal payments from maturing securities.ECB - European Central Bank: “The APP and PEPP portfolios are declining at a measured and predictable pace, as the Eurosystem no longer reinvests the principal payments from maturing securities.”
- SupportedThe Transmission Protection Instrument is available to counter unwarranted, disorderly market dynamics that seriously threaten monetary-policy transmission across the euro area.ECB - European Central Bank: “The Transmission Protection Instrument is available to counter unwarranted, disorderly market dynamics that pose a serious threat to the transmission of monetary policy across all euro area countries”
