The European Central Bank (ECB) kept interest rates unchanged on Thursday, 29 October, holding its deposit rate at 2.50% while signalling that a further increase in December is now firmly in view. European shares rose on the day, with the benchmark Stoxx 600 closing at its highest level in seven weeks.
The decision, announced by the ECB’s Governing Council, left all three key rates unchanged: the deposit facility rate at 2.50%, the main refinancing operations rate at 2.65% and the marginal lending facility rate at 2.90%. The rates had last risen in September, the second quarter-point increase of 2026 after a first rise in June.
European stocks close at a seven-week high
European stocks ended firmly higher on Thursday. The pan-European Stoxx 600 closed up about 0.8% at 649.43, its best close since early September, Germany’s DAX ended 1.4% higher at 26,052.75 and France’s CAC 40 rose 1.1% to 7,970.00, according to Sharecast’s market report.
The rally was not driven by the rate decision alone. Strong corporate earnings also lifted the market, with Shell hitting a record high after reporting its strongest quarterly profit since 2022. But the ECB’s widely expected hold removed one source of uncertainty, and the bank’s message on inflation kept the prospect of a December move in focus rather than settling it.
The euro slipped after the decision, falling about 0.4% against the dollar, while euro-area bond yields edged lower.
Why the ECB held — and why December is now the focus
The ECB said energy prices have continued to rise, posing upside risks to inflation and downside risks to growth, while measures of underlying inflation have remained broadly stable so far and wages have not yet shown a clear reaction to the energy shock. It repeated that it is not pre-committing to a particular rate path and will decide meeting by meeting on incoming data.
At her press conference, President Christine Lagarde said the Council had debated whether a rise was appropriate but decided unanimously to hold until more information arrived. She added that the situation as it stood could have warranted a hike, and that if the data available by the December meeting confirmed that picture, “the sense of direction is quite clear” — language markets read as preparing the ground for a December increase.
That reading is shared by economists and by policymakers speaking after the meeting. A Reuters poll taken on 5–8 October found 70 of 73 economists expected the October hold and 64 of 73 expected a 25-basis-point rise in December. Three policymakers told Reuters after Thursday’s meeting that a hike at the 17 December meeting was almost certain unless energy prices fell sharply and unexpectedly, a move that would take the deposit rate to 2.75%. The same sources said policymakers then expected to pause, because ECB estimates circulated before the meeting suggested higher bond yields would lower cumulative growth by 100 basis points and inflation by 90 basis points in 2027–28 compared with the September baseline.
The inflation backdrop
Euro-area inflation reached 3.8% in September, up from 3.2% in August, according to Eurostat’s final release, with energy prices up 18.9% over the year. That is well above the ECB’s 2% medium-term target, and the bank has raised rates twice this year to prevent an energy-driven price jump from becoming entrenched.
At the same time, policymakers are watching for second-round effects — energy costs spreading into wages and other domestic prices — which have so far remained limited. The six weeks before the December meeting will bring two inflation releases, third-quarter GDP data and new staff projections, which Lagarde said would help determine whether the case for a hike is confirmed.
The rate decision came on the same day Lagarde announced she will step down early, leaving her post on 7 February 2027, eight months before her term was due to end. That leadership change is covered separately on Emadan (see internal link below); it does not change the rates decided on Thursday, but it adds a succession question to the December meeting.
What to watch before 17 December
Three things will shape the December decision. First, energy prices: a sharp and sustained fall would weaken the case for a hike, while further rises would strengthen it. Second, the incoming inflation and GDP data, and whether they show energy costs spreading beyond energy itself. Third, financial conditions: higher government bond yields, particularly in France, are already tightening conditions, which is one reason policymakers expect a pause after any December move.
For households and businesses in the euro area, Thursday’s decision means borrowing costs are unchanged for now, with bank lending and deposit rates typically following the deposit rate with a delay. Nothing in the ECB’s statement guarantees a December hike: the bank has deliberately kept its options open, and the decision will depend on the data.
Frequently asked questions
What did the ECB decide on 29 October?
It kept all three key rates unchanged: the deposit rate at 2.50%, the main refinancing operations rate at 2.65% and the marginal lending facility rate at 2.90%.
When is the next ECB meeting?
The next policy meeting is on 17 December 2026, when the bank will also publish new staff projections.
What would a December hike take the deposit rate to?
A 25-basis-point rise would take the deposit facility rate from 2.50% to 2.75%.
Why did European stocks rise?
The Stoxx 600 closed at a seven-week high on a combination of strong earnings and the widely expected ECB hold, even as the bank warned that energy-driven inflation risks remain.
Sources
- European Central Bank, Monetary policy decisions, 29 October 2026: https://www.ecb.europa.eu/press/pr/date/2026/html/ecb.mp261029~9a493adf17.en.html
- Hargreaves Lansdown / Sharecast, Europe close: Stocks gain as ECB stands pat, signals December rate hike: https://www.hl.co.uk/shares/stock-market-news/market-reports/europe-close-stocks-gain-as-ecb-stands-pat,-signals-december-rate-hike
- Reuters via The Economic Times, Global Market: ECB may pause rate hikes after December amid growth risks, 30 October 2026: https://economictimes.indiatimes.com/markets/us-stocks/wall-street-guide/global-market-ecb-may-pause-rate-hikes-after-december-amid-growth-risks/articleshow/135346378.cms
- Agence Europe, Monetary institute leaves key interest rates unchanged but prepares markets for December rise, 29 October 2026: https://agenceurope.eu/en/bulletin/article/13971/2/monetary-institute-leaves-key-interest-rates-unchanged-but-prepares-markets-for-december-rise
- Business Times (Reuters), European shares close at seven-week high after ECB pause; Lagarde resigns, 30 October 2026: https://www.businesstimes.com.sg/companies-markets/capital-markets-currencies/european-shares-close-seven-week-high-after-ecb-pause-lagarde-resigns
- Reuters poll via FXStreet, ECB expected to pause in October before hiking rates in December, 8 October 2026: https://www.fxstreet.com/news/ecb-expected-to-pause-in-october-before-hiking-rates-in-december-reuters-poll-202610081239
