ECB holds rates as energy shock threatens inflation and growth
The European Central Bank left interest rates unchanged on Thursday, warning that rising energy prices could push inflation higher and weigh on economic growth, as President Christine Lagarde announced plans earlier in the day to step down early next year.
The ECB's Governing Council maintained 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 decision comes as the central bank grapples with an increasingly prolonged energy shock, which it warned poses upside risks to inflation and downside risks to economic growth across the eurozone.
"Energy prices have continued to rise, posing upside risks to the inflation outlook and downside risks to the growth outlook," the ECB said.
The central bank also noted that financing conditions have tightened since its previous monetary policy meeting, a development likely to weigh on both inflation and growth.
The ECB also maintained its data-dependent, meeting-by-meeting approach to monetary policy.
"The Governing Council is not pre-committing to a particular rate path," the ECB said.
Meanwhile, the ECB confirmed that its asset purchase programme and pandemic emergency purchase programme portfolios would continue to decline at a measured and predictable pace, as the Eurosystem no longer reinvests principal payments from maturing securities.
It also reiterated that its 'Transmission Protection Instrument' remains available to counter disorderly market movements that threaten the transmission of monetary policy across eurozone countries.
Thursday's interest rate decision coincided with the announcement earlier in the day that ECB President Christine Lagarde will step down on February 7, 2027, eight months before her term was due to expire in October.
Lagarde, who succeeded Mario Draghi in November 2019, informed the Governing Council and European Council President Antonio Costa of her decision.
Her departure sets up a leadership contest at a critical time for eurozone monetary policy, with Spain's Pablo Hernandez de Cos and former Dutch central bank governor Klaas Knot among the potential candidates to succeed her.
Her early departure would allow German Chancellor Friedrich Merz and French President Emmanuel Macron to help shape the succession process ahead of France's presidential election in April and May 2027.
Lagarde is scheduled to explain the Governing Council's latest monetary policy decision at a press conference beginning at 1345 GMT on Thursday.
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