Inflation meets targets but interest rates are not lowered! The European Central Bank remains "unmoved" for the fifth consecutive time, possibly entering a long-term "observation period" in 2026.

The European Central Bank announced to keep three key interest rates unchanged, with the deposit facility rate, the main refinancing rate, and the marginal lending rate locked at 2.00%, 2.15%, and 2.40% respectively. This decision marks the fifth consecutive time that the European Central Bank has taken a "wait-and-see" stance at its interest rate meeting, fully meeting the widespread expectations of the financial markets. Although the inflation rate in the Eurozone fell to 1.7% in January, below the central bank's long-term target of 2% for the first time, given that services inflation still shows strong resilience and wage growth pressures have not been fully released, the decision-makers unanimously believe that a restrictive monetary policy environment still needs to be maintained to ensure that price levels can stably return and stay within the target range. Earlier, the core inflation rate (excluding volatile energy and food prices) fell to the lowest level since the end of 2021 in January. The Eurozone's GDP grew by 0.3% in the fourth quarter, slightly higher than economists' forecasts. In a monetary policy statement released on Thursday, the European Central Bank's Governing Council emphasized that the economy "remains resilient in a global environment full of challenges," noting low unemployment, increased public and defense spending, and "robust" balance sheets in the private sector. From an external macroeconomic perspective, the European Central Bank's decision to maintain the status quo this time is largely in response to the increasingly complex global economic and trade situation as well as exchange rate volatility risk. Due to the uncertainty of the recent U.S. government's tariff policy and expectations of a shift in the Federal Reserve's policy, the euro's exchange rate against the dollar has been unusually strong in recent trends. While this exchange rate volatility has somewhat suppressed import inflation, it has also put pressure on the export trade that the Eurozone relies on. ECB President Lagarde reiterated in a subsequent policy statement that the path of monetary policy will continue to strictly follow the principle of being "data-dependent." Following the announcement of this widely expected decision, the euro remained stable, with the exchange rate slightly weaker against the dollar on the same day, slightly below 1.18 dollars. Looking ahead to the future policy path, as internal economic growth momentum remains weak and inflation volatility risks brought by global geopolitical factors cannot be ignored, the mainstream view in the market has turned cautious. Most analysts believe that the European Central Bank may maintain the current interest rate base throughout the entire 2026 fiscal year and enter a long "observation period." Derivatives market traders continue to price in the likelihood of a further cut in benchmark interest rates this year, with the probability of a 0.25 percentage point rate cut being around 30%. S&P Global Ratings analyst Sylvain Broye said that with the euro acting as a "shock absorber" due to its strength and economic growth "exceeding expectations," the European Central Bank "can continue on autopilot" this time. The European Central Bank's rate cuts began in June 2024 and have lowered borrowing costs to the lowest level since December 2022.