ECB holds interest rates as rising energy prices threaten inflation and growth
The European Central Bank kept its three key rates unchanged on 29 October and said it would assess incoming data before deciding its next move.
The European Central Bank kept its three key interest rates unchanged on 29 October 2026 in Frankfurt, according to its monetary policy statement. The decision leaves the ECB weighing rising energy prices, which it says threaten to push inflation higher while weakening growth across the euro area.
Why energy prices complicate the ECB’s next decision
ECB President Christine Lagarde and Vice-President Boris Vujčić said the full effects of the energy shock were still unfolding. They warned that its greater scale and duration, including possible indirect effects on other prices and further effects on wages, were likely to lift inflation and lower growth. For now, they said, underlying inflation had remained broadly stable and wages had shown no material response.
The Governing Council said it remains committed to bringing inflation to its 2% medium-term target. The combination of higher price risks and weaker growth makes the incoming evidence important to its next decision: the bank said it would assess both the inflation outlook and the strength of the shock’s effects across the economy.
Borrowing conditions and the rate outlook
Financing conditions have tightened since the previous ECB meeting, the statement said, with market interest rates rising and stock prices falling. The ECB expects that tightening to weigh on both inflation and growth. The cost of market-based debt for firms rose to 4.1% in August from 4.0% in July, while bank lending rates for firms remained at 3.8%.
For households, the ECB reported that mortgage rates rose to 3.6% in August from 3.5% in July. Mortgage lending growth edged down to 3.0% in September. Banks left mortgage credit standards unchanged in the third quarter, but demand for mortgages declined substantially as interest rates rose, according to the statement.
The Governing Council said it would decide policy meeting by meeting, considering incoming economic and financial data, the inflation outlook, underlying price pressures and how its policy is affecting the economy. It did not commit to a particular path for interest rates.
Reuters, in a profile carried by RTÉ, described Lagarde’s tenure as spanning pandemic disruption, two energy shocks and the euro area’s worst inflation spike. Economist Willem Buiter told Reuters her seven years at the ECB had been, on the whole, pretty good. That history provides context for a decision in which the bank identifies risks to prices and growth at the same time.
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Sources and context
- Monetary policy statementEuropean Central Bank
- Christine Lagarde: The outsider who led the ECB her wayReuters, carried by RTÉ
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