The European Central Bank (ECB) announced on September 11, 2025, that it will maintain its three key interest rates at their current levels. ECB President Christine Lagarde stated that inflation is close to the bank’s two percent medium-term target and the outlook for inflation remains largely unchanged.
“The Governing Council today decided to keep the three key ECB interest rates unchanged. Inflation is currently at around our two per cent medium-term target and our assessment of the inflation outlook is broadly unchanged,” said Lagarde.
New projections from ECB staff indicate headline inflation will average 2.1 percent in 2025, fall to 1.7 percent in 2026, and reach 1.9 percent in 2027. For core inflation—excluding energy and food—the forecast is for an average of 2.4 percent in 2025, then declining to 1.9 percent in 2026 and 1.8 percent in 2027.
Economic growth is projected at 1.2 percent for next year, up from a previous estimate of 0.9 percent made in June, while growth forecasts for subsequent years have been slightly adjusted downward or remain unchanged.
Lagarde emphasized the ECB’s commitment to stabilizing inflation: “We are determined to ensure that inflation stabilises at our two per cent target in the medium term. We will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance.”
She noted that economic performance over the first half of this year was driven by resilient domestic demand, with a stronger first quarter followed by weaker growth in the second quarter due partly to international trade dynamics related to anticipated tariff changes.
Labour market conditions remain relatively strong despite some softening demand; unemployment stood at 6.2 percent in July, which could support consumer spending if household savings decrease as expected.
Investment is expected to benefit from earlier rate cuts and government spending on infrastructure and defence projects across Europe.
Lagarde warned that higher tariffs, a stronger euro, and global competition could slow growth through year-end but expects these factors’ impact will lessen next year as recent trade agreements help reduce uncertainty.
The ECB also called on governments across the euro area to strengthen fiscal and structural policies aimed at improving productivity and competitiveness: “Fiscal and structural policies should make the economy more productive, competitive and resilient.” She referenced ongoing efforts following Mario Draghi’s report on European competitiveness and stressed completing reforms such as banking union initiatives as well as establishing a legislative framework for a potential digital euro.
Recent data shows annual inflation rose slightly from July’s level of two percent to reach 2.1 percent in August; energy prices continued their negative trend while food price increases moderated somewhat.
Underlying indicators suggest wage growth is slowing—from nearly five percent last year down to just under four percent recently—and this moderation alongside productivity gains may help contain domestic price pressures even as company profits recover.
Looking forward, food price inflation is expected to decrease gradually over coming years while energy prices are likely to stay volatile but trend higher due partly to upcoming changes like implementation of new emissions trading systems within the EU starting in 2027.
Longer-term expectations for inflation remain anchored near two percent according to most measures tracked by the ECB.
Lagarde identified several risks facing both economic growth and inflation—including persistent geopolitical tensions such as Russia’s actions against Ukraine or conflict in the Middle East—as well as possible impacts from financial markets or shifts in global supply chains.
She concluded by summarizing recent trends: short-term market rates have risen since July while long-term rates stayed stable; corporate borrowing costs fell modestly; mortgage lending picked up slightly; overall credit conditions showed some improvement compared with earlier months.
