The European Central Bank (ECB) decided on Thursday, 29 October, to leave euro-area interest rates where they were. The deposit facility rate, the policy benchmark that pays banks for money parked at the ECB, stays at 2.50%. The main refinancing operations rate remains at 2.65% and the marginal lending rate at 2.90%.
The pause interrupts a short run: in September the Governing Council raised rates by a quarter of a percentage point, the first increase after a long cycle of cuts. Since then, instead of easing, euro-area inflation has moved the other way.
Inflation at nearly double the target
Eurostat figures put euro-area prices up 3.8% year on year — close to double the 2% target the ECB pursues. The Council's statement acknowledges the pressure and attributes it mainly to energy: prices "have continued to rise, creating upside risks to the inflation outlook", the text says.
The bank points to two effects of the energy shock that pull in opposite directions for anyone setting rates: the surge pushes inflation up and growth down at the same time. It is the classic shape of a supply shock, in which raising rates tackles the first problem and worsens the second.
Two indicators were cited as reason to wait. The ECB says underlying inflation — the measure that strips out energy and food, used to read the trend — remains "broadly stable", and that wages have not yet responded significantly. As long as the surge does not spread to the rest of prices, the central bank can call the increase externally driven and hold off.
France enters the calculation
The decision was also read in the light of public finances. The political and fiscal crisis in France, the bloc's second-largest economy, has unsettled the bond market — the gap between French and German ten-year yields has reached its widest level in fifteen years in recent days. For some analysts, instability on that scale already tightens financing conditions on its own, making further tightening by the ECB less necessary.
The statement itself records that financing conditions have become more restrictive. The Council repeated its formula that it remains "well positioned" and will follow a "data-dependent and meeting-by-meeting approach" — in other words, with no advance commitment on the next step.
Markets bet on December
Markets read the next move as coming, but not now. Money markets now treat a rise to 2.75% at the December meeting as highly likely, and some investors project a further increase, to 3%, in February. The euro fell about 0.4% against the dollar after the announcement, consistent with the view that a hike has moved further off in the near term.
The February meeting carries extra weight. Christine Lagarde has confirmed she will leave the ECB presidency on 7 February 2027, about nine months before her term ends — leaving her, at most, one or two more hikes before the handover.
With information from O Povo, Diário de Notícias and Observador.
