publication
2025-12-18 14:15
At its December meeting, the Governing Council of the European Central Bank again decided to keep interest rates unchanged. This means that the ECB deposit rate was below HICP inflation for the previous 12 months.
– The Governing Council decided today leave the three key ECB interest rates unchanged. Its current assessment once again confirms that inflation should stabilize at the target level of 2% in the medium term, we read in the December statement of the European Central Bank.
The deposit rate – which has been the key interest rate at the ECB for some time – remained unchanged at 2.00%. The rate of main refinancing operations was also not changed, which is 2.15%as well as the loan rate of 2.40%.
This was the fourth decision in a row to keep interest rates unchanged. The Governing Council delivered the same verdict in July, as well as in September and late October. That July decision was the first of its kind after eight cuts in a row as part of the monetary policy easing cycle that started in 2024.
This is how the ECB loosened its monetary policy
In June 2024, a decision was made to reduce interest rates in the euro zone for the first time since 2019. Previously, ECB rates were kept at the highest levels since 2001 for nine months. The total scale of these reductions amounted to 200 basis points. in the case of the deposit rate and 235 bps. in the case of the refinancing operation rate.
However, in 2025, the ECB completed the cycle of reductions in ECB credit costs in June. Previously, the ECB cut rates at its meetings in April, March and at the end of January. In mid-December last year, the Governing Council also reduced borrowing costs by 25 basis points. In October 2024, the ECB decided to cut rates by 25 basis points, and in September it also reduced the deposit rate by 25 basis points, while reducing the reference rate by as much as 60 basis points.
As a result, ECB rates have fallen below the HIPC inflation rate for the last 12 months. Preliminary Eurostat data show that the harmonized index of consumer prices (HICP) in the euro area in November 2025 was 2.2% higher than a year earlier. So this means resetting real interest rates in the Eurozone. Or even going slightly below zero if, in line with the ECB's assurances, we take the deposit rate of 2.00% as the benchmark.
As part of the December inflation projection, ECB economists assumed that HICP inflation would average 2.1% in 2025, 1.9% in 2026, 1.8% in 2027 and 2.0% in 2018. Inflation excluding energy and food prices, according to expert forecasts, will average 2.4% in 2025, 2.2% in 2026, 1.9% in 2027 and 2.0% in 2028.
Is this the end of the easing cycle?
The December decision of the Governing Council was not a surprise to economists and market participants. The former unanimously announced no changes in interest rates at the ECB. The last voices about a possible further reduction appeared in July.
– The Governing Council remains committed to ensuring that inflation stabilizes at the target level of 2% over the medium term. The Governing Council will determine the appropriate monetary policy stance on a data-driven basis, from meeting to meeting, as is customary, the ECB statement added.
The tone of recent statements by ECB President Crisitine Lagarde also spoke in favor of ending the cycle of interest rate cuts in the Eurozone. – From the point of view of monetary policy, we are in a good place. “It's not predetermined, but we will do whatever it takes to make sure we stay in that good place,” Lagarde said during an October news conference.
European QT remains unchanged
In parallel to interest rate cuts, the ECB is pursuing a policy of “quantitative tightening” (QT) of monetary conditions. Under QT, the APP portfolio is reduced at a specific and predictable rate because the Eurosystem no longer reinvests capital repayments on maturing securities. As of July 2023, the Governing Council has stopped reinvestment under the APP program.
The APP and PEPP portfolios are being reduced at a specific and predictable pace as the Eurosystem is no longer reinvesting capital repayments on maturing securities, it said. The ECB stopped reinvestment under the PEPP program at the end of 2024.
This was the last scheduled decision-making meeting of the Governing Council in 2025. The next one will take place on February 4-5, 2026.
