European Central Bank keeps interest rates unchanged as December projections see inflation back at 2% in 2028

The European Central Bank published its economic, financial and monetary developments review, confirming that at the 18 December 2025 meeting the Governing Council kept the three key policy rates unchanged and maintained a data-dependent, meeting-by-meeting approach with no pre-commitment to a rate path. The accompanying December 2025 Eurosystem staff projections continue to see inflation moving around target over the medium term, with headline inflation dipping below 2% in 2026-27 before returning to 2% in 2028, alongside slightly stronger projected growth than in the September 2025 projections. The deposit facility rate was kept at 2.00%, the main refinancing operations rate at 2.15% and the marginal lending facility rate at 2.40%. Staff projections put Harmonised Index of Consumer Prices inflation at 2.1% in 2025, 1.9% in 2026, 1.8% in 2027 and 2.0% in 2028, and inflation excluding energy and food at 2.4% in 2025, 2.2% in 2026, 1.9% in 2027 and 2.0% in 2028, with the 2026 inflation outlook revised up mainly due to more persistent services inflation. Real GDP growth is projected at 1.4% in 2025, 1.2% in 2026 and 1.4% in 2027 and 2028, revised up over the horizon and driven especially by domestic demand. Balance sheet normalisation continues via a measured decline in the asset purchase programme and pandemic emergency purchase programme portfolios as the Eurosystem no longer reinvests principal repayments from maturing securities, and the Governing Council reiterated it stands ready to adjust all instruments within its mandate to ensure inflation stabilises sustainably at target and to preserve smooth monetary policy transmission.