By Miguel Jiménez González-Anleo, from BBVA Research
The ECB complied with the expected script and left the interest rates on the deposit facility unchanged at 2%. The decision was adopted unanimously and reinforces the idea that the institution has entered a prolonged phase of monetary stability, in which rate policy is no longer the main focus of attention. Proof of this is that at the press conference Lagarde was asked about topics far removed from the day-to-day life of monetary policy, such as the financing of the war in Ukraine, the digital euro and, inevitably, about her own succession at the head of the institution.
The president insisted that the ECB is “in a good place”, an expression already used in the last meeting to underline that, in principle, rates will not change. But he was quick to clarify that being “in a good place” does not imply immobility. The Governing Council unanimously agreed that “all options must remain on the table”, avoiding any explicit commitment regarding the future path of rates. Lagarde was especially clear in rejecting the possibility of offering forward guidance, which was once the policy mantra of central banks to manage expectations and reinforce their credibility. It is clear that in a context marked by multiple geopolitical uncertainties and with the effects of trade tensions yet to be identified, and mainly with greater sources of economic shocks than in the past due to the volatility of global economic policy, the ECB is somehow able to see them coming. “There is no set date for any move,” Lagarde said, insisting that the central bank reserves full flexibility.
On the other hand, the ECB revised its growth forecasts upwards, based on stronger-than-expected domestic demand and positive surprises in investment and exports. Part of this improvement responds to an advance in trade flows, but Lagarde highlighted that investment has surprised on the rise, not only the public, but also the private sector. In this way, digitalization and spending linked to artificial intelligence are beginning to appear as new drivers of growth not only in the United States but also in Europe, although the president was cautious when interpreting this data. He pointed out that it is still early to conclude that the eurozone is facing a structural change in its growth profile, especially when foreign trade will continue to act as a drag in the coming quarters.
In inflation, the message was one of continuity, but with nuances, given the small, although persistent, surprises that we are seeing recently in services inflation and salary indicators. The ECB continues to expect a convergence of inflation towards 2% in the medium term, but revised upwards the forecast for 2026. It was something that was expected. However, Lagarde downplayed this rebound, noting that part of the wage surprise may be temporary, and that pressures should moderate gradually. In fact, the markets, which reacted with increases in the euro and interest rates when the statement was published, later eased their tension when Lagarde explained the central bank’s vision.
The market, which in recent weeks had begun to discount the start of the upward rate cycle as early as the end of 2026, has moderated its expectations, now discounting a rate hike in June 2027, in line with our scenario.
In short, it seems that the ECB is preparing for a prolonged pause. In the absence of relevant shocks, deposit rates could remain at 2% throughout 2026 and much of 2027. Surveillance will focus especially on services inflation, but without a markedly aggressive tone. The debate over how to predict the impact of AI on productivity and growth will increase. And the tense wait for what else may come from the other side of the Atlantic will continue.
