ECB Holds Interest Rates Steady as Inflation Stabilises - February 2026
Interest rate decision
Today, the Governing Council of the European Central Bank announced its decision to keep interest rates unchanged (deposit facility - 2%, main refinancing operations - 2.15% and marginal lending facility - 2.40%), during a press conference held by President Christine Lagarde and Vice-President Luis de Guindos.
The ECB reaffirmed that its primary objective remains price stability, with inflation anchored at the 2% target. We previously explored this on ECBs inflation deviation and monetary policy.
Economic activity
Economic growth remained modest at the end of 2025, with GDP expanding by 0.3%, mainly driven by the services sector, particularly information and communication services.
Unemployment remains low at around 6%, while rising incomes and lower household savings are expected to support consumption. Business investment is also projected to strengthen.
However, the ECB highlighted several global challenges, including:
trade tariffs
a stronger euro
a more uncertain international environment
The Governing Council stressed the urgent need to strengthen the euro area, especially in the current geopolitical context. Governments were encouraged to focus on sustainable public finances and growth-enhancing reforms.
This message aligns with themes discussed in our broader Economic Outlook of Europe - Q1 2026.
Inflation
Inflation declined to 1.7% in January, down from 2.0% in December.
Underlying inflation indicators have changed little in recent months and remain consistent with the ECB’s 2% target. Most measures of longer-term inflation expectations continue to hover around this level, supporting the view that inflation is stabilising.
Risks to the outlook
The ECB highlighted continued uncertainty facing the euro area.
Downside risks to growth include:
a volatile global policy environment
weaker global demand
tighter financial conditions
frictions in international trade
ongoing geopolitical conflicts
On the upside, planned defence, infrastructure, and technology investment could support growth more than expected, improving business and consumer confidence. New trade agreements could also contribute positively.
Inflation risks follow similar patterns:
Lower inflation risks
weaker export demand due to tariffs
a stronger euro
Higher inflation risks
supply chain disruptions
rising energy prices
These themes are closely linked to recent geopolitical developments discussed on our article about the relation between Geopolitical instability and Europe.
Financial and monetary conditions
The average interest rate on new mortgages remained stable at 3.3% in December.
The ECB noted a rising demand for loans and signs of easing credit conditions in parts of the market.
These developments are important for Europe, where bank lending plays a central role in economic activity.
For more context, see our article on the ECB’s financial stability review - november 2025.
Conclusion
The ECB reiterated that future interest rate decisions will remain data-dependent and based on: the inflation outlook, risks surrounding inflation, incoming economic and financial data and the strength of monetary policy transmission.
As President Lagarde stated clearly:
“We are not pre-committing to a particular rate path.”
Sources:
