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The European Central Bank kept its three main policy interest rates unchanged at its October meeting in Frankfurt, pausing its rate-hiking cycle after the U.S. Federal Reserve took a similar step. The deposit rate was left at 2.50%, the main refinancing rate at 2.65% and the marginal lending rate at 2.90%, in line with market expectations.

Hours before the decision, the ECB announced that President Christine Lagarde will leave the post on February 7, 2027, earlier than the October 2027 end of the term. Rising energy costs, higher price pressures and a sharp climb in French bond yields were among the issues expected to dominate the Frankfurt news conference.

Rates left unchanged

The ECB Governing Council announced its rate decision after the October meeting in Frankfurt. Following the U.S. Federal Reserve, the central bank has now paused its rate increases for the time being.

Market analysts had expected the bank to keep all three benchmark rates where they were despite the energy crisis triggered by tensions in the Middle East and mounting price pressures. Analysts nonetheless project that rates could be raised again in both the United States and the euro area before Christmas.

Energy shock poses risks to growth and prices

A statement released after the meeting stressed that higher energy prices create upside risks to the inflation outlook and downside risks to the growth outlook. It also warned that the indirect effects of the energy shock could push inflation higher, and reported that financing conditions continue to tighten.

The statement repeated that the ECB makes no pre-commitment to the future path of monetary policy. "The Governing Council will continue to follow a data-dependent and meeting-by-meeting approach to ensure inflation returns to its 2% target over the medium term," it said, adding that decisions will be shaped by economic and financial data and by the strength of monetary policy transmission.

The bank also said the portfolios of the Asset Purchase Programme (APP) and the Pandemic Emergency Purchase Programme (PEPP) continue to be reduced at a moderate and predictable pace.

Lagarde to step down early

Just hours before the rate decision, it was announced that ECB President Christine Lagarde will leave the position early. The ECB said Lagarde, whose term would normally expire in October 2027, will step down as of February 7, 2027.

The early departure was expected to be the main item at the news conference scheduled to start at 4:45 p.m. Turkish time. Bank sources said that, alongside the resignation decision, economic conditions in Lagarde's home country would also be among the priority topics in Frankfurt.

French bond yields climb

Alongside the inflation pressure, a sharp recent rise in bond yields is causing concern within the ECB leadership. The benchmark yield on France's 10-year government bonds rose above 5% for the first time since 2002.

The gap between French bonds and German government bonds, which are considered a safe haven, widened to its highest level since the euro crisis.

Key takeaways

• The ECB kept its deposit, refinancing and marginal lending rates at 2.50%, 2.65% and 2.90% respectively.
• Christine Lagarde will leave the ECB presidency on February 7, 2027, ahead of the October 2027 end of the term.
• The bank flagged upside risks to inflation and downside risks to growth from rising energy prices.
• France's 10-year bond yield topped 5% for the first time since 2002, widening the gap with German bunds.