The deep logic and market impact of the European Central Bank maintaining interest rates unchanged

Recently, the European Central Bank announced that it will maintain the three key interest rates in the eurozone unchanged - the main refinancing rate of 2.15%, the marginal lending rate of 2.40%, and the deposit rate of 2.00%. This decision is in line with market expectations. President Lagarde emphasized that "slight deviation of inflation from the target does not require special action," but it reflects the complexity of economic governance and policy balancing in the eurozone.

From the inflation data, European Central Bank staff predict an average overall inflation rate of 2.1% in 2025, with a core inflation rate expected to be 2.4%, slightly higher than the 2% target but showing a downward trend. This' mild deviation 'allows policies to remain restrained and avoid excessive tightening that could harm economic growth. Historical data shows that since the European Central Bank started its interest rate cut cycle in June 2024, it has cumulatively cut interest rates by 235 basis points, reducing deposit rates from 4.75% to 2.00%. Policy transmission has begun to show results - in the first quarter of 2025, the overnight lending rate for the eurozone banking industry dropped to 2.40%, and corporate loan costs fell by 235 basis points from their peak in 2023. However, there is a lag in policy effectiveness, with service price increases falling from 4.5% in the first quarter of 2025 to 3.1%, indicating that inflationary pressures are gradually easing.

Economic growth and the resilience of the labor market are another pillar supporting unchanged interest rates. The European Central Bank has raised its GDP growth forecast for 2025 to 1.2%, higher than the 0.9% forecast in June, mainly due to the recovery of domestic demand and expansion of the service industry. Although the manufacturing industry is still in a contraction zone, the PMI of the service industry continues to be higher than the boom bust line, and the consumer confidence index has marginally improved driven by income growth. In terms of the labor market, the unemployment rate remains at a historical low of 6.5%, and wage growth has fallen from a high level but remains sticky, forming a positive cycle of "income consumption". This "soft landing" feature gives the European Central Bank the space to observe the early policy effects rather than rushing for further easing.

The market response confirms the rationality of the decision. The euro to dollar exchange rate only rose slightly by 0.1% after the resolution, indicating that investors have fully priced the interest rate unchanged. Foreign exchange analysts point out that the cost of hedging against the euro is at its lowest level since October 2024, indicating market confidence in the flexible strategy of the European Central Bank's "successive meetings". In contrast, the Federal Reserve's expectation of interest rate cuts has a more significant impact on the eurozone - the US non farm payroll only increased by 22000 in August, the unemployment rate rose to 4.3%, and the market fully priced the September interest rate cut, which may lead to a weakening of the US dollar index and an increase in passive appreciation pressure on the euro. The European Central Bank needs to be vigilant about the impact of exchange rate fluctuations on export competitiveness, especially against the backdrop of rising global trade protectionism.

In terms of policy challenges and future prospects, the European Central Bank faces three pressures: firstly, the refinement of inflation expectation management, which requires the inclusion of homeowner housing costs in inflation statistics to more accurately reflect the real price level; The second is to deal with energy price fluctuations and geopolitical risks. The sequelae of the Russia-Ukraine conflict still affect the energy supply chain; The third is to coordinate monetary and fiscal policies to avoid the rise of sovereign debt risks. Lagarde emphasized that the European Central Bank will adhere to the principle of "data dependence" and decide on subsequent actions based on the third quarter inflation and growth data at the October 2025 meeting. If the core inflation rate falls below 2% as scheduled, there is a possibility of further interest rate cuts in December.

The European Central Bank's decision to maintain interest rates unchanged this time is not a passive choice, but an active decision based on the downward trend of inflation, growth resilience, and policy transmission effects. At a critical juncture of the Federal Reserve's interest rate cut cycle and the restructuring of global capital flows, the European Central Bank, by maintaining policy flexibility, has avoided the risk of inflation rebound caused by premature easing and reserved space for future economic downturns. This "step by step" strategy is precisely the survival wisdom of mature central banks in uncertain times.