Analysis
ECB Held at 2.5% as Lagarde Said She Will Leave Early
The ECB kept its deposit rate at 2.5% on Thursday after hikes in June and September. President Christine Lagarde said she will step down on February 7, 2027, about nine months before her term was due to end.
The European Central Bank paused on Thursday, October 29, and its president announced her departure in the same press conference. The Governing Council left the deposit facility rate at 2.50%, the main refinancing rate at 2.65% and the marginal lending rate at 2.90%, after quarter-point increases in June and September. The decision matched forecasts: 70 of 73 economists polled by Reuters had expected a hold. Lagarde said a further increase had been discussed during the meeting.
The statement put energy at the centre. "Energy prices have continued to rise, posing upside risks to the inflation outlook and downside risks to the growth outlook," it said. Euro-area inflation reached 3.8% in September, the highest since September 2023, and the Irish Times reported that it could rise above 4%, double the target, while private-sector activity grew at its slowest pace in four months in October. Higher government bond yields, including a sell-off in French debt, have tightened financial conditions without the ECB having to act, and gave it room to wait.
Then Lagarde turned to her own future. She will leave on February 7, 2027, about nine months before the end of her eight-year term, to have the freedom to speak on international matters beyond monetary policy. "I don't think that I can remain neutral," she said. Reports have linked the timing to letting European leaders choose her successor before France's presidential election in the spring, and the Irish Times named Klaas Knot, the former Dutch central bank governor, and Pablo Hernández de Cos, the former Bank of Spain governor, as front-runners.
Her exit is part of a wider turnover. Executive board member Isabel Schnabel leaves in January, a year early, to join the International Monetary Fund, and chief economist Philip Lane's term ends in May, so three of the six seats on the board will change hands within seven months. Markets reacted little on the day, and still price another quarter-point increase in December, with some economists, including Bloomberg Economics, expecting that to be the last of the cycle.
For traders, the December meeting is now about more than rates. It will be Lagarde's last full projection round before a successor is chosen, with energy prices still rising and a growth outlook weakening at the same time. A hike there would be easier to explain as finishing the job than any move left to a new president in the spring; a hold would leave her successor to inherit a debate the council has not resolved.