The European Central Bank closed out its 2025 meeting calendar on December 18 by holding interest rates unchanged for a fourth consecutive meeting, as widely expected, while subtly shifting its tone in a more hawkish direction. With eight rate cuts already delivered between June 2024 and June 2025, the Governing Council signaled it was in no hurry to move again, but some policymakers began openly discussing the next move as a hike rather than a cut, a notable change after eighteen months dominated by easing.
Rates Held, Language Recalibrated
The ECB kept its deposit facility rate at 2.00%, in line with the unanimous expectation of analysts polled by Bloomberg. President Christine Lagarde repeated that policymakers consider themselves in a good place on rates, but stressed that this position is not static, dropping the previous reference to the outlook being uncertain. The Governing Council also stressed unanimity that all optionalities should remain on the table for future meetings, avoiding any pre-commitment to a specific path in either direction. Alongside the deposit rate, the main refinancing rate stood at 2.15% and the marginal lending facility at 2.40%, leaving the full rate corridor unchanged for a fourth straight meeting.
Growth Resilience Feeds the Hawkish Tilt
The shift in tone was underpinned by upgraded projections: the ECB now expects eurozone growth of 1.4% in 2025, up from a prior estimate of 1.2%, reflecting a more resilient economy than policymakers had anticipated earlier in the year. Executive Board member Isabel Schnabel went further than the rest of the Council, telling Bloomberg she was rather comfortable with market bets that the next move would be a hike, citing stronger-than-expected services inflation and wage growth, even as she cautioned any move was not likely any time soon. The Governing Council's updated projections also saw growth reaching 1.2% in 2026 and 1.4% in 2027, while headline inflation was seen averaging 2.1% in 2025, easing to 1.9% in 2026 and 1.8% in 2027, before ticking back up to 2.0% in 2028.
A Divided Governing Council
Not every policymaker shared Schnabel's urgency, and the Council's statement reflected that divide by refusing to offer forward guidance beyond a data-dependent, meeting-by-meeting approach. The mixed messaging left investors parsing individual officials' comments for clues on timing rather than relying on a unified committee signal, a departure from the clearer easing bias that had characterized ECB communication for much of the prior eighteen months. Staff projections also pointed to headline inflation easing gradually toward target over the following two years.
What It Means for Traders
A hold with a hawkish tilt can move currency and rates markets just as much as an actual policy change, since it resets expectations for the path ahead. For traders, the ECB's shift toward openly discussing a potential hike, even without acting, is the kind of signal that can support the euro against currencies where central banks remain in easing mode. Tracking individual Governing Council members' commentary between meetings, not just the policy statement itself, has become an important part of anticipating the ECB's next move and positioning ahead of it.
Daily market analysis by BCM Markets.