ECB holds its deposit rate at 2.50% as energy prices push euro area inflation to 3.8%

The European Central Bank’s Governing Council kept its three key interest rates unchanged on October 29, 2026. The deposit facility rate stays at 2.50%, the main refinancing operations rate at 2.65% and the marginal lending facility rate at 2.90%.

Why the ECB held

The ECB said energy prices have continued to rise, posing upside risks to the inflation outlook and downside risks to growth. Underlying inflation has stayed broadly stable so far and wages show no material response yet, but the Council said the larger and longer energy shock is likely to drive inflation up and growth down. Financing conditions have tightened since its last meeting, which it expects to weigh on both.

In the monetary policy statement, President Christine Lagarde said euro area inflation rose to 3.8% in September from 3.2% in August, with energy inflation at 18.9%. Inflation excluding energy was 2.3%, and services inflation 3.2%. Unemployment was 6.4% in August. Energy prices have risen beyond the path in the September staff projections, which the ECB says is likely to keep headline inflation well above its 2% target over the coming quarters.

The ECB said the risks to growth are to the downside and the risks to inflation to the upside, citing in particular the Middle East conflict and Russia’s war against Ukraine.

No pre-set path

The Council repeated that it will decide meeting by meeting, based on the data, and is not pre-committing to a particular rate path. The APP and PEPP bond portfolios continue to shrink as maturing principal is not reinvested, and the Transmission Protection Instrument remains available against disorderly market moves.

The decision came a day after the US Federal Reserve held its rates (read our brief) and the Bank of Canada raised its own (read our brief).

Lagarde to step down

Separately, the ECB announced on the same day that Lagarde has told the Governing Council and European Council President António Costa that she will step down on February 7, 2027. Her successor will be appointed by the European Council under Article 283 of the Treaty on the Functioning of the European Union.