Europe | Rates steady, growth revised up

Summary

Despite slightly higher growth and inflation forecasts, Lagarde struck a cautious tone, stressing high uncertainty and avoiding forward guidance. The ECB is watching services inflation and wages and starting to assess AI’s impact. Barring surprises, a prolonged pause with the deposit rate at 2% through 2027 looks likely.

Key points

• Key points:
• As expected, the ECB kept rates unchanged (depo at 2.00%) in a unanimous decision.
• Lagarde reiterated that the ECB is in a "good place" but stressed that "all optionalities should remain on the table" amid high uncertainty.
• Growth projections were revised up, but the ECB remains cautious about drawing structural conclusions.
• Inflation was revised up in 2026 on persistent services inflation and wage surprises, though pressures are expected to ease.

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