Will the ECB Cut Interest Rates in December?

Introduction to the European Central Bank’s Interest Rates

The European Central Bank (ECB) is expected to hold interest rates steady on December 18, marking the fourth consecutive meeting without a change since the central bank lowered rates by 0.25 percentage points on June 11. This decision is largely anticipated due to the current state of the eurozone economy, which has shown resilience despite challenges.

Key Takeaways

• The ECB is widely expected to maintain interest rates at their current levels.
• Money markets are now pricing in an interest rate increase in October 2026, indicating a shift in expectations.
• Inflation in the eurozone may still surprise to the upside, potentially influencing future rate decisions.

Current Economic Conditions

Since the ECB’s October meeting, incoming data has done little to justify any rate change. Third-quarter GDP growth was stronger than expected, and sentiment indicators point to continued resilience. However, the fundamentals of the eurozone economy have not materially changed, with US tariffs still affecting exports and investment being held back by uncertainty. The 2026 growth remains highly dependent on German fiscal stimulus.

What Are the Key ECB Interest Rates?

The ECB’s policy rates have been adjusted over time to manage inflation and support economic growth. The current rates are:

• Deposit Facility Rate: 2.00%
• Main Refinancing Rate: 2.15%
• Marginal Lending Facility: 2.40%

Will the ECB Hike Rates in 2026?

Money markets are pricing in largely unchanged rates for the near future, but there is a notable shift in expectations for October 2026, with implied rates above the current level. ECB executive board member Isabel Schnabel has mentioned that eurozone growth risks are "clearly tilted to the upside" and that "risks to inflation are tilted to the upside," suggesting potential for higher rates if inflation exceeds the ECB’s target.

Inflation and Growth Outlook

The ECB staff will present new forecasts on eurozone inflation and growth, including projections for 2028. While some economists believe the inflation forecast for 2026 may be raised slightly, the growth trajectory is expected to remain steady. The delayed implementation of the EU emissions trading system for buildings, road transport, and small industry (ETS2) from 2027 to 2028 could impact inflation projections.

ECB Meetings in 2026

The ECB has scheduled meetings for:

• February 5, 2026
• March 19, 2026
• April 30, 2026
• June 11, 2026
• July 23, 2026
• September 10, 2026
• October 29, 2026
• December 17, 2026

Conclusion

The European Central Bank’s decision to hold interest rates steady is expected, given the current economic conditions and the bank’s mandate to maintain price stability. While there are indications that inflation could surprise to the upside, potentially leading to a rate hike in the future, the majority view is that any following ECB rate change is more likely to be a cut, at least through late spring next year. The ECB’s upcoming meetings and new forecasts will provide more insight into the bank’s stance on interest rates and the eurozone’s economic outlook.