The European Central Bank (ECB) is leaving the key interest rate, which is important for banks and savers in the euro area, unchanged at 2.0 percent. The ECB is thus meeting the expectations of economists and is extending the so-called interest rate pause for the fourth time in a row.
The last reduction of the key interest rate That’s half a year ago: Between June 2024 and June 2025, the ECB reduced the interest rate from the historic high of four percent to the level of two percent in increments of 0.25 percentage points. Previously, against the background of the consequences of the corona pandemic and the energy crisis, the interest rate was increased from minus 0.5 percent to four percent within less than two years.
High key interest rates are considered a standard instrument used by central banks to combat inflation: they are passed on by private banks to their customers, which makes loans more expensive and reduces consumption. This in turn weakens the demand for goods and services and thus also the prices.
In the long run, credit-financed investments also become more expensive, which harms the economy. Therefore, central banks usually lower the key interest rate again as soon as inflation has fallen. In the euro area, the ECB expects inflation to be comparatively low at 2.1 percent this year. In 2022, the inflation rate in the euro area reached a high of 8.4 percent.
