Monetary policy: ECB is leaving the key interest rate stable for the time being despite high inflation

The key interest rates in the euro area remain unchanged for the time being despite increased inflation. The deposit interest rate, which is important for banks and savers, remains 2.5 percent, as the Council of the European Central Bank (ECB) decided in Frankfurt.

In September, the ECB raised the key interest rate by 0.25 percentage points for the second time this year. The rise in crude oil and energy prices in the wake of the Iran war had driven up inflation. The most important goal of the euro currency watchdog is to keep inflation within limits.

The financial markets are expecting a further interest rate hike in December if inflation fueled by higher energy prices in the wake of the Iran war does not subside.

Higher interest rates make loans more expensive for consumers and companies. This can slow down demand and thus dampen inflation. Savers benefit when banks pass on rising key interest rates. At the same time, interest rate increases are a burden on the already weak economy. The ECB is in a quandary: if it raises interest rates too much, it runs the risk of strangling the economy.

In Germany, as in other euro countries, inflation has risen significantly. In Europe's largest economy, goods and services for consumers cost 3.3 percent more in September than a year earlier - the highest inflation rate in around three years.

The ECB is aiming for an inflation rate of 2.0 percent for the euro area in the medium term. With this mark, the central bank sees its most important goal fulfilled: ensuring a stable euro and maintaining people's purchasing power. According to the ECB, however, people in the euro area will have to prepare for increased inflation until at least 2027.

In addition to the central bank's monetary policy, ECB President Christine Lagarde herself has come into focus: the Frenchwoman announced a few hours before the key interest rate decision that she would resign from office on February 7, 2027. Her term as head of the ECB runs until October 2027. There had been speculation for a long time about an early withdrawal and a move to the World Economic Forum.

As early as February 2026, the Financial Times reported that Lagarde wanted to withdraw before the presidential election in France in April 2027. The background is concerns that Euro-critical right-wing populists led by Marine Le Pen could win the elections in the second largest euro economy, which could make it more difficult to fill the top of the ECB.

The politically heated situation in France also suggested that the ECB wants to keep all options open for the time being. There have recently been serious riots and looting during protests in Germany's neighboring country.