European Central Bank set to hold interest rates amid stable growth, contained inflation
- The European Central Bank is widely anticipated to keep interest rates on hold.
- ECB President Lagarde is likely to reiterate the meeting-by-meeting approach.
- EUR/USD remains stable above 1.1800, with buyers looking to return.
The European Central Bank (ECB) is holding its two-day meeting and will announce its monetary policy decision on Thursday. The ECB is widely expected to keep interest rates on hold for the fifth consecutive meeting, leaving the main refinancing operations, the marginal lending facility, and the deposit facility at 2.15%, 2.4%, and 2%, respectively.
Additionally, ECB President Christine Lagarde will hold a press conference afterward to explain policymakers’ reasoning behind the decision.
Ahead of the announcement, the EUR/USD pair trades above the 1.1800 mark, stabilizing after retracing sharply from January’s peak at 1.2082.
What to expect from the ECB interest rate decision?
The ECB is in a good position and plans to remain there, refraining from any further monetary policy action. The ECB was among the first major central banks to cut rates after post-pandemic inflation peaks that drove multi-decade highs in rates. President Christine Lagarde's latest mantra has been that monetary policy is in a “good place,” and is expected to repeat the message.
The Governing Council decided to keep rates unchanged at its December meeting, offering no fresh clues about future action. As ING noted, “The minutes of the ECB’s December meeting confirm the ECB’s wait-and-see stance in a macro environment, in which the base case looks very benign, but risks remain unusually high.”
In the meantime, macroeconomic data released in the last couple of months confirm officials’ stance. The Euro area economy has not only been resilient but is finally showing signs of improvement.
According to the latest Eurostat data, the European Union (EU) grew by 0.3% quarter-on-quarter in the three months to December, while the 2025 Gross Domestic Product (GDP) grew by 1.6% year-on-year.
In the meantime, inflation cooled down in January, as expected. Eurostat reported that the Harmonized Index of Consumer Prices (HICP) rose 1.7% in the year to January as expected, while easing from the 1.9% posted in December. The core HICP, which excludes volatile components such as food or energy, rose by 2.3% as anticipated, matching the previous month’s figure.
Finally, it is worth remembering that, speaking after the ECB’s final Governing Council meeting, President Lagarde made it clear that, given that monetary policy is in a “good place,” this does not imply a fixed or predictable path for rates. She also emphasised the ECB’s meeting-by-meeting approach.
In this scenario, the upcoming monetary policy decision is likely to be a non-event. The general consensus is that the ECB will maintain its hawkish stance and that President Lagarde will repeat the message that the ECB is in wait-and-see mode, attentive to economic developments without a pre-set monetary path.
How could the ECB meeting impact EUR/USD?
As previously noted, the EUR/USD pair is stable above 1.1800 ahead of the announcement, following volatile price action over the previous two weeks. The EUR/USD pair also trades roughly 300 pips below its recent peak, yet retains most of its 2025 gains.
Valeria Bednarik, FXStreet Chief Analyst, notes: “Technically speaking, the EUR/USD pair bearish case seems well-limited. In the daily chart, the pair holds well above all its moving averages, with a bullish 20-day Simple Moving Average (SMA) heading north above the 100 and 200 SMAs while providing support at around 1.1760. At the same time, technical indicators have picked up after nearing their midlines, presenting uneven upward strength at the time of writing.”
Bednarik adds: “The EUR/USD pair bottomed at around 1.1775 earlier in the week, making the 1.1760-1.1770 area the immediate downward barrier. A slide below the level exposes the 1.1700 threshold, en route to the 1.1640 price zone. Bulls will be looking for a recovery beyond 1.1920 to add longs, aiming for a test of the 1.2000 mark.”
Economic Indicator
ECB Rate On Deposit Facility
One of the European Central Bank's three key interest rates, the rate on the deposit facility, is the rate at which banks earn interest when they deposit funds with the ECB. It is announced by the European Central Bank at each of its eight scheduled annual meetings.
Read more.Next release: Thu Feb 05, 2026 13:15
Frequency: Irregular
Consensus: 2%
Previous: 2%
Source: European Central Bank
Central banks FAQs
Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.
A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.
A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.
Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.
Author
FXStreet Team
FXStreet
