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At her press conference, Lagarde set out why the hold was a close question. Inflation rose to 3.8 percent in September, from 3.2 percent in August, with energy price inflation up markedly to 18.9 percent and inflation excluding energy at 2.3 percent; services inflation rose to 3.2 percent. She said energy prices have increased beyond the path in the September staff projections, which is likely to keep headline inflation well above target over the coming quarters, and that the risks to inflation are to the upside while the risks to growth are to the downside. The economy continued to expand in the third quarter, the unemployment rate stayed at 6.4 percent in August, and wage pressures remain moderate. In the question session, as reported by FXStreet and Bloomberg, she said the council debated whether a hike would be appropriate, decided unanimously to hold, and is not seeing a risk of second-round effects beyond what is in the projections.
The European Central Bank kept its three key interest rates unchanged on Thursday. The deposit facility rate stays at 2.50 percent, the main refinancing rate at 2.65 percent and the marginal lending rate at 2.90 percent, the Governing Council said in its decision release.
The bank said energy prices have continued to rise, posing upside risks to the inflation outlook and downside risks to the growth outlook, and that the increased magnitude and duration of the energy shock are likely to drive up inflation and lower growth through indirect and second-round effects. Underlying inflation has remained broadly stable so far, wages do not show a material response at this stage, and financing conditions have tightened since the last meeting, which the bank said is likely to weigh on inflation and growth. The council said it remains data dependent and meeting by meeting, and is not pre-committing to a particular rate path. President Christine Lagarde, who announced earlier on Thursday that she will step down on February 7, 2027, chaired the press conference.