ECB maintains 2 percent interest rate amid uncertain outlook
The European Central Bank has kept its key interest rate unchanged at 2 percent, a decision explained by De Nederlandsche Bank (DNB). This stable policy reflects a highly uncertain global environment with balanced risks to both growth and inflation.
Navigating a two-sided risk landscape
The euro area continues to face an unstable global environment, characterized by fluctuations in financial market confidence, geopolitical tensions, and disruptions in global trade.
These factors present two-sided risks for economic growth: while higher investment in defense and infrastructure, alongside further European market integration, could strengthen the economy, weaker demand and cheap imports from China could slow it down.
Similarly, inflation faces opposing forces; higher energy prices due to Middle East tensions or supply chain disruptions could boost it, while a stronger euro or weaker demand could depress it.
Given this complex mix, a stable monetary policy is deemed appropriate for the current moment.
Stable rates, varied impact on borrowing
Following a series of rate cuts in 2024-2025, the ECB's policy rate has stabilized at 2 percent, a level that neither stimulates nor significantly slows the economy.
This stability has led to relatively subdued movements in market interest rates.
Mortgage and corporate borrowing rates have fallen from their 2023 peak and remained stable since summer 2025. The average corporate borrowing rate was 3.6 percent at the end of last year, 1.7 percentage points below its peak, while the average mortgage rate for households stood at 3.3 percent in December, 0.7 percentage points lower than its 2023 high.
The gap between these rates has narrowed significantly, from 1.4 percentage points in March 2024 to approximately 0.2 percentage points currently, largely due to the longer fixed-interest periods common in household mortgages compared to shorter-term corporate loans.
A necessary pause in uncertain times
The ECB's decision to hold rates reflects a prudent approach to an unpredictable economic environment, prioritizing stability over further adjustments.
While this pause offers some relief and predictability for businesses and households, the underlying risks for both growth and inflation remain significant and finely balanced.
This period allows for further data assessment, but active policy adjustments may become necessary if global uncertainties intensify or specific risks materialize.