ECB holds its deposit rate at 2.5% after euro-area inflation hit 3.8%

The European Central Bank (ECB) kept its deposit facility rate, the rate it pays banks on overnight deposits, at 2.5% on October 29, it said, after raising it by a quarter of a percentage point in September. The decision was expected, CNBC reported. Euro-area inflation had risen to 3.8% in September, the highest since September 2023, CNBC noted.

What the ECB decided

The Governing Council left its three key interest rates unchanged: 2.5% for the deposit facility, 2.65% for main refinancing operations and 2.90% for the marginal lending facility. The deposit rate had risen from 2.25% with effect from September 16, according to the ECB's key rates table.

Energy drove the rise in inflation. Energy prices were 18.9% higher than a year earlier in September, up from 14.3% in August, the ECB said in its monetary policy statement, in line with Eurostat's final September data.

At the press conference, ECB President Christine Lagarde said that "at this point in time, we are not seeing a risk of second-round effects in addition to what is already included in the projections," according to the ECB's transcript.

What markets priced after the decision

After the October 29 decision, money markets priced about a 67% chance of another hike in December, according to LSEG data cited by CNBC. The ECB's next monetary policy meeting is on December 16–17.

The decision came one day after the US Federal Reserve held its own rates, with two officials voting for an increase (our Fed report).

Since the decision

Inflation has kept rising. Eurostat's flash estimate on November 4 put euro-area inflation at 4.0% in October, with energy prices up 20.8%.

The other news from the press conference

Lagarde also announced she will leave the ECB on February 7, 2027, before her term was due to end in October 2027.

What it could mean for traders

For currency markets, the gap between ECB and Fed policy is one of the main influences on the euro-dollar exchange rate. When a central bank pauses while markets still price further increases, rate expectations, and the currencies tied to them, stay sensitive to each new inflation report. With October inflation at 4.0% in the flash estimate, the December 16–17 meeting is the next marker.