Why didn't the European Central Bank raise interest rates again, even as inflation climbed higher? On 29 October 2026, the Governing Council voted unanimously to keep all three key rates unchanged. The deposit facility rate stays at 2.50%, the main refinancing rate at 2.65%, and the marginal lending rate at 2.90%. This follows September's 25-basis-point hike, which had pushed the deposit rate up from 2.00%.
Despite rising inflation, the ECB held all three key rates steady on 29 October, pausing after September's 25-basis-point hike.
The headline numbers suggest a hike might have made sense. Euro-area inflation jumped to 3.8% in September from 3.2% in August. Energy inflation surged to 18.9%, up from 14.3%, while services inflation and core inflation both edged higher too. The ECB admitted energy prices had risen beyond what it expected back in September, meaning headline inflation could stay elevated for a while.
Still, policymakers chose patience. Underlying inflation looked stable, and wages hadn't reacted much to the energy shock. Compensation per employee actually slowed to 3.3% in Q2 from 3.6% in Q1, and negotiated wage growth is projected to stay between 2.5% and 2.8% for the rest of 2026. Longer-term inflation expectations remain anchored near 2%, with no sign of second-round effects yet.
Growth data added another layer of caution. The euro area kept expanding in Q3, but unemployment held at 6.4% in August, and consumer confidence took a hit from pricier energy. Borrowing costs have climbed too—corporate rates reached 4.1%, bank lending rates to firms hit 3.8%, and mortgage rates rose to 3.6%. Tighter credit is already slowing mortgage lending growth, which eased to 3.0% in September.
Looking ahead, Lagarde flagged two fresh worries: rising energy prices and higher long-term financing costs. Ten-year sovereign yields have climbed roughly 35 basis points since September's projections were finalized. The ECB says it won't commit to a fixed path—future moves depend on data, meeting by meeting. This cautious, data-dependent approach is itself a tool of monetary policy, allowing the central bank to adjust borrowing costs gradually while monitoring inflation and growth signals.
For markets, that means watching upcoming inflation reports, Q3 GDP, and wage figures closely. Currency traders tracking the euro's path should also note ripple effects on African economies with euro-pegged or euro-linked currencies, where shifts in European borrowing costs can influence capital flows and import prices.
