The European Central Bank kept its three key interest rates unchanged at its February meeting, reaffirming that inflation is expected to stabilise at the 2% target over the medium term, ECB President Christine Lagarde said at a press conference in Frankfurt.
Lagarde and Vice-President Luis de Guindos said the euro area economy remains resilient despite heightened global trade uncertainty and geopolitical tensions. Growth of 0.3% in the fourth quarter of 2025 was driven mainly by services, while manufacturing held up better than expected and construction activity picked up on the back of public investment. Unemployment declined slightly to 6.2% in December, continuing to support household incomes and consumption.
Inflation fell to 1.7% in January from 2.0% in December, largely due to a sharp drop in energy prices. Core inflation eased to 2.2%, while services inflation declined further to 3.2%. Lagarde said underlying inflation indicators remain consistent with the ECB’s medium-term target and that negotiated wage growth is moderating, although uncertainty remains around non-negotiated wage components.
The Governing Council reiterated its commitment to a data-dependent, meeting-by-meeting approach and stressed that it is not pre-committed to any specific interest rate path. Lagarde said risks to growth and inflation are “broadly balanced,” with downside risks stemming from trade tensions, geopolitical uncertainty and a stronger euro, while upside risks include defence and infrastructure spending, structural reforms and deeper integration of the EU single market.
Lagarde said the ECB does not target the exchange rate but closely monitors it as an input into inflation projections. She noted that the euro’s appreciation against the dollar since March 2025 is already incorporated into the ECB’s baseline outlook.
On the international role of the euro, Lagarde said a stronger global role for the currency does not necessarily imply sustained appreciation. She highlighted the importance of legal certainty, deeper capital markets, defence and infrastructure investment, and trade agreements in strengthening the euro’s global standing. She also confirmed that the ECB is reviewing its liquidity framework, including repurposing repo lines to make euro liquidity more accessible to central banks outside the euro area.
Addressing concerns about inflation undershooting, Lagarde said the ECB cannot react to single data points and remains focused on achieving its 2% target over the medium term. She said recent inflation readings reflect temporary factors, particularly base effects in energy prices, and do not alter the overall policy baseline.
Lagarde also pointed to growing private and public investment, including in digital technologies and AI-related infrastructure, as a positive driver of domestic demand and future productivity growth, although she cautioned that productivity gains will take time to materialise.
The ECB concluded by stressing the urgent need for euro area governments to advance structural reforms, strengthen capital market integration, complete the banking union and rapidly adopt legislation on the digital euro to support growth, competitiveness and strategic autonomy in the current geopolitical environment.
