Published by Global Banking & Finance Review®
Posted on December 18, 2025
4 min readLast updated: January 20, 2026
Add as preferred source on GoogleThe ECB is set to hold rates steady as the euro zone economy shows resilience, with inflation stable around 2%. Growth and inflation forecasts may be adjusted.
FRANKFURT, Dec 18 (Reuters) - The European Central Bank is widely expected to keep its policy rates steady on Thursday and signal little appetite for cuts in the near term as the euro zone economy holds its ground in the face of global trade shocks and inflation remains stable.
Recent growth figures for the 20-country currency bloc have beaten ECB expectations, buoyed by exporters navigating U.S. tariffs more effectively than anticipated and by German domestic spending that has counterbalanced a malaise in manufacturing.
Inflation, meanwhile, has been hovering around the ECB's 2% target, boosted by price hikes in the services sector, and is expected to stay there for the foreseeable future.
That is likely to mean the ECB raises some of its growth and inflation forecasts on Thursday - effectively, though not explicitly, drawing a line under an easing cycle that saw it halve its policy rate from 4% to 2% in the year to last June. Some members of the ECB's Governing Council had wanted to do so at their last meeting in October.
"The haze of economic uncertainty has somewhat lifted, especially regarding trade," Lorenzo Codogno, founder of LC Macro Advisors, said. "This will give the Governing Council greater confidence that it is in a good spot, likely eliminating any remaining easing bias."
RATE HIKE NEXT?
ECB President Christine Lagarde may even be asked if rates are next set to go up, as some traders have started betting. But this debate is seen by many as premature given ample idle capacity in the manufacturing sector.
"I would expect she will avoid wading into the debate of whether the next move will be a hike or a cut," BNP Paribas Chief Economist Isabelle Mateos y Lago said. "The reality is, the bar is probably quite high for a move in either direction in the next few meetings."
Some comments from ECB board member Isabel Schnabel, chief economist Philip Lane and Lagarde herself have helped fuel some speculation about a rate hike late next year.
But most economists polled by Reuters expect the ECB to leave rates where they are through 2026 and 2027, although the forecast range for the latter year was wide at 1.5%-2.5%.
HIGHER PROJECTIONS FOR GROWTH AND INFLATION
The ECB can otherwise do little but acknowledge the euro zone economy is now growing close to its potential at roughly 1.4% per year, that sentiment is recovering and that industrial output is showing signs of bottoming out.
Economists expect growth to carry forward into next year, supported by the German government's planned investments in defence and infrastructure and a relatively tight labour market, where workers have finally seen their wages catch up with the post-pandemic surge in prices.
"A stable labour market, a growing service sector, and the German fiscal stimulus will provide a tailwind to the euro zone economy in the coming months," Felix Schmidt, a senior economist at Berenberg, said.
Lagarde herself has said the ECB will increase its economic growth projections - which currently see GDP expanding 1.2% this year, 1.0% in 2026 and 1. 3% in 2027 - and economists expect it to nudge up its core inflation forecasts for 2026-27 too.
These will be crucial to watch as they factor out the effect of a delay to the European Union's carbon trading scheme, which will mechanistically bring down headline inflation in 2026-27 and push it up in 2028.
Among factors likely to weigh on inflation is the euro's strength against the Chinese yuan or renminbi, which is making it even harder for the euro zone to compete with China, and against the U.S. dollar, which may fall further if the Federal Reserve cuts rates more rapidly under a new chair.
"When you look at the trade balance of Europe, it appears that the competitiveness problem is much more pronounced against China than against the U.S. For me the exchange rate to look at is not the dollar euro, it's the euro-renminbi," BNP's Mateos y Lago said.
(Reporting by Francesco Canepa; Editing by Catherine Evans)
Monetary policy refers to the actions taken by a country's central bank to control the money supply and interest rates to achieve macroeconomic objectives such as controlling inflation, consumption, growth, and liquidity.
Gross Domestic Product (GDP) is the total monetary value of all finished goods and services produced within a country's borders in a specific time period, used as a broad measure of overall economic activity.
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power. Central banks attempt to limit inflation to keep the economy running smoothly.
The European Central Bank (ECB) is the central bank for the euro and administers monetary policy within the Eurozone, aiming to maintain price stability and manage inflation.
Economic growth is the increase in the production of goods and services in an economy over a period of time, typically measured as the percentage increase in real GDP.
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