ECB Holds Rates on Oct. 29, Warns Energy Price Shock Could Lift Inflation and Weigh on Growth

The European Central Bank left interest rates unchanged Thursday, saying a renewed rise in energy costs is complicating the outlook by increasing the risk of both higher inflation and weaker growth across the euro area.

In its Oct. 29 policy decision, the ECB said, “The Governing Council today decided to keep the three key ECB interest rates unchanged.” That left 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 move keeps borrowing costs at the levels set after the ECB’s quarter-point increase on Sept. 10.

The central bank said the energy shock remains a major concern. “Energy prices have continued to rise, posing upside risks to the inflation outlook and downside risks to the growth outlook,” the Governing Council said in its press release. It added that the full effects of the shock are still unfolding. At the same time, the ECB said underlying inflation has remained broadly stable so far and that wages do not yet show a material response. It also warned that the increased magnitude and duration of the energy shock, including possible indirect and second-round effects, are likely to push inflation up and growth down. Separately, the ECB said, “Financing conditions have tightened since the Governing Council’s last meeting, which is likely to weigh on inflation and growth.”

The bank repeated that it remains focused on returning inflation to its 2% medium-term target, while keeping maximum flexibility over its next steps. “The Governing Council is not pre-committing to a particular rate path,” it said, adding that decisions will continue to be made meeting by meeting and guided by incoming data.

On its balance sheet, the ECB said the asset purchase program, or APP, and the pandemic emergency purchase program, or PEPP, portfolios are continuing to shrink because the Eurosystem is no longer reinvesting principal from maturing securities. It also reiterated that its Transmission Protection Instrument, introduced in July 2022 to protect the transmission of monetary policy if market stress becomes disorderly, remains available to counter unwarranted and disorderly market dynamics.

Thursday’s decision extends a stop-start pattern in recent months. The ECB raised rates by 25 basis points on June 11, held them steady on July 23, raised them again by 25 basis points on Sept. 10 and then held them on Oct. 29. In its September 2026 staff projections, the ECB said euro-area headline inflation was expected to average about 3.0% in 2026, 2.5% in 2027 and 2.1% in 2028 under its baseline scenario, with the outlook heavily influenced by the energy-price shock. ECB President Christine Lagarde was due to speak about the decision at a press conference starting at 14:45 CET, or 13:45 UTC.