Finance
ECB policymakers prepare for December showdown on inflation, rates
Published by Global Banking and Finance Review
Posted on October 31, 2025
2 min readLast updated: January 21, 2026
Global Banking and Finance Review
Company
Published by Global Banking and Finance Review
Posted on October 31, 2025
2 min readLast updated: January 21, 2026
ECB policymakers prepare for a December meeting to discuss inflation and interest rates, with new projections influencing potential rate changes.
FLORENCE, Italy/FRANKFURT (Reuters) -European Central Bank policymakers are preparing for something of a showdown at their next meeting in December, when new three-year projections will shed light on whether or not they risk undershooting their target, four sources told Reuters.
The European Central Bank kept interest rates unchanged at 2% for the third meeting in a row on Thursday and repeated that policy was in a "good place" as economic risks recede and the euro zone shows resilience in the face of uncertainty.
Policymakers were generally sanguine about economic growth but views differed when it came to inflation, which the euro zone's central bank expects to slip below its 2% target next year before bouncing back in late 2027, the sources said.
The ECB will publish its first set of projections for 2028 in December and some policymakers thought that clear evidence pointing to a continued undershooting in inflation that year would justify debating a rate cut at the meeting, the sources said.
But others argued that long-term projections should be taken with a pinch of salt, given their track record, and in any case, a modest undershooting of just 20 or 30 basis points can be tolerated, the sources added.
An ECB spokesperson declined to comment.
HOW MUCH WIGGLE ROOM?
The debate is partly about how far the bank should be allowed to stray from its inflation target before policy needs to be adjusted.
The ECB's strategy, published earlier this year, allows for some wiggle room but does not precisely define its extent because it is "context-specific and depends on the origin, magnitude and persistence of the deviation", leaving policymakers with different views.
The ECB publishes point estimates for inflation as well as lower and upper bounds that represent the likely range of outcomes.
ECB President Christine Lagarde said at her news conference on Thursday that the central bank's "good place" for policy was not "fixed" and policymakers would treat the risk of undershooting as seriously as that of overshooting -- a principle known as symmetry.
(Reporting by Francesco Canepa and Balazs Koranyi; Editing by Ros Russell)
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 stable.
Monetary policy refers to the actions taken by a central bank to manage the money supply and interest rates to achieve macroeconomic objectives such as controlling inflation, consumption, growth, and liquidity.
The European Central Bank (ECB) is the central bank for the euro and is responsible for monetary policy within the Eurozone, aiming to maintain price stability and oversee the financial system.
Interest rates are the cost of borrowing money or the return on savings, typically expressed as a percentage. They are influenced by central bank policies and economic conditions.
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