The ECB is set to stay firmly on hold this week, with Deutsche Bank expecting domestic resilience to keep policy unchanged through 2026.

Summary:

  • ECB widely expected to keep rates unchanged on Thursday

  • Policymakers seen comfortable with policy “in a good place”

  • Euro strength not yet a trigger for action, despite inflation undershoot

  • Deutsche Bank sees ECB on hold through 2026, with next hike in 2027

  • Risks in 2026 still skewed toward easing, but not yet compelling

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The European Central Bank is set to keep interest rates unchanged at its February meeting, with policymakers expected to signal no urgency to adjust policy despite choppy global markets and renewed currency volatility.

With inflation close to target and growth tracking near potential, ECB President Christine Lagarde is likely to reiterate that monetary policy is in a “good place”. Markets are firmly priced for steady rates throughout 2026, reflecting confidence that domestic conditions remain sufficiently resilient to offset external headwinds.

Recent euro strength and a softer US dollar have revived concerns that inflation could undershoot the ECB’s target for longer than expected. However, policymakers are not yet seen as alarmed. On a trade-weighted basis, the euro has moved only modestly, and higher energy prices may help cushion the disinflationary impact of currency appreciation.

Deutsche Bank argues that the balance of forces shaping ECB policy remains tilted toward internal resilience rather than external weakness. In its baseline view, the bank expects the ECB to remain on hold throughout 2026, with the next policy move more likely to be a rate hike in mid-2027 rather than further easing.

While Deutsche Bank acknowledges that risks this year are skewed toward additional support, particularly if inflation undershoots persist, it stresses that the case for renewed easing has not yet been proven. The bank sees strong labour markets, solid wage growth and resilient domestic consumption continuing to underpin the euro area economy, even as exports and manufacturing struggle.

Looking ahead, Deutsche Bank frames the policy outlook as a contest between external pressures, including global trade tensions and currency moves, and internal strength driven by consumption and fiscal support. For now, it expects the latter to dominate, allowing the ECB to remain patient.

European Central Bank policy meeting dates, 2026

This article was written by Eamonn Sheridan at investinglive.com.

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