European Central Bank (ECB) Monetary Policy Decision summary

Monetary policy decisions and outlook

• ECB lowered all three key interest rates by 25 basis points, with the deposit facility rate at 2.50%, main refinancing at 2.65%, and marginal lending at 2.90%, effective 12 March 2025, reflecting updated inflation and economic assessments.

• Disinflation is progressing as expected; headline inflation is projected at 2.3% in 2025, 1.9% in 2026, and 2.0% in 2027, with core inflation forecast at 2.2% in 2025, 2.0% in 2026, and 1.9% in 2027.

• Growth forecasts were revised down to 0.9% for 2025, 1.2% for 2026, and 1.3% for 2027, citing weak exports, investment, and high uncertainty.

• Monetary policy is becoming less restrictive, with loan growth picking up, but lending remains subdued due to lagged effects of previous rate hikes.

• Decisions will remain data-dependent, with no pre-commitment to a specific rate path amid heightened uncertainty.

Economic and inflation dynamics

• Domestic inflation remains high due to delayed wage and price adjustments, though wage growth is moderating as expected.

• Services inflation is easing, while goods and food inflation have seen slight increases.

• Risks to growth are tilted to the downside, with trade tensions, policy uncertainty, geopolitical conflicts, and climate events adding uncertainty.

• Fiscal and structural policies are encouraged to enhance productivity, competitiveness, and resilience, with a focus on sustainable public finances.

• Most measures of longer-term inflation expectations remain anchored around 2%.

Financial and monetary conditions

• Market interest rates have fluctuated, with recent increases linked to fiscal policy outlooks; borrowing costs for firms and households are declining.

• Average interest rates on new loans to firms dropped to 4.2% in January; new mortgages at 3.3%.

• Growth in bank lending to firms grew 2.0% in January; debt securities issuance up 3.4% annually, though mortgage lending growth remains muted at 1.3%.

• APP and PEPP portfolios continue to decline as reinvestments have ceased; quantitative tightening is ongoing but not a primary tool.