The European Central Bank left interest rates unchanged on Thursday, opting to keep the key deposit rate at 2%. That level was set in June last year when the central bank halted a year-long series of rate reductions that began from a record high of 4%.
Two recent data points figure prominently in the ECB's assessment. First, eurozone inflation eased to 1.7% in January, a fall that represents the lowest reading since September 2024. Second, the region's economy posted 1.5% growth in 2025, an acceleration from 0.9% in 2024 and above the European Commission's projection of 1.3%.
Taken together, those readings underpin the case for a continued pause in policy for the foreseeable future. With inflation undershooting the ECB's target and growth holding at a moderate pace, officials have little immediate pressure to raise rates. At the same time, the central bank remains alert to developments that could alter that assessment.
One such development is the strength of the euro. Policymakers have noted that a stronger single currency against the dollar reduces import costs - particularly for energy - and thereby exerts downward pressure on inflation at a moment when price pressures are already running below target. In a post-decision press conference, ECB President Christine Lagarde commented that the inflation outlook had become more uncertain and warned that a firming euro could drive prices lower.
Analysts at Deutsche Bank, writing to clients ahead of the decision, argued that while they expect rates to remain unchanged through 2026, the balance of risks increasingly points toward "further easing given the expected undershoot of the inflation target." They noted that recent events, including the appreciation of the euro against a weakening U.S. dollar, have emphasized that downside risk - even as they added that the case for additional rate reductions "has not been proven yet."
The Deutsche Bank team outlined three conditions that could persuade the ECB to resume cutting rates this year: continued euro strength, weaker eurozone growth, and further slowing of inflation. They also warned that the threshold for policy action has been lowered by recent developments, citing geopolitical tensions over Greenland and concerns about imported disinflation from China as factors that have increased uncertainty.
"What happens next depends on the contest between external vulnerabilities and domestic resilience," the note said. "Our baseline assumes the latter dominates and the ECB stays on hold. But it’s fair to say that uncertainty around the path of monetary policy has increased."
For now, economic indicators and the currency outlook suggest a prolonged period of steady policy. The central bank's attention will likely remain focused on readings for inflation, growth, and exchange rates as potential triggers for a change in direction.