ECB Leaves Rates Unchanged, Keeps Focus on Inflation As Energy Shock Continues
Updated 30 Oct 2026•3 min read
The ECB kept interest rates unchanged at its October meeting, following a 25-bps hike in September, with the deposit facility rate remaining at 2.50%. Eurozone inflation rose to 3.8% in September from 3.2% in August, as tensions in the Middle East and the ongoing Russia–Ukraine conflict continue to put pressure on energy prices. A prolonged energy shock could feed into broader prices and weigh further on growth, keeping the ECB focused on returning inflation to its 2% target.
Eurozone Growth Outlook Could Weaken Amid Energy Costs and Tighter Financing Conditions
Eurozone growth has remained resilient, supported by a recovery in services, AI-related investment and higher public spending on defence and infrastructure. However, elevated energy costs are squeezing household purchasing power, while tighter financing conditions are weighing on credit demand, with corporate lending growth slowing to 4.2% from 4.4% and mortgage rates rising to 3.6%.
Although wage growth moderated to 3.3% in Q2 from 3.6% in Q1 and productivity improved, employment growth remains subdued. Prolonged energy disruptions and trade uncertainty could further weigh on consumption, investment and exports, partly offsetting support from public spending and AI investment.
The ECB projects growth of 0.9% in 2026, rising to 1.4% in 2027 and 1.5% in 2028, although risks remain tilted to the downside.
Energy Shock Pushes Inflation Higher, Raising Risk of Persistent Price Pressures
Eurozone inflation rose to 3.8% in September from 3.2% in August, driven by energy inflation accelerating to 18.9% from 14.3%. Inflation excluding energy also edged up to 2.3% from 2.1%, although moderating wage growth and easing goods inflation suggest underlying pressures remain relatively contained. The key risk is whether elevated energy costs spill over into broader prices, keeping inflation higher for longer.
Food inflation could also face additional pressure from extreme weather and El Niño. While second-round effects from elevated energy prices remain limited so far, a prolonged energy shock could keep headline inflation above target, complicating the ECB’s task of maintaining price stability as growth risks increase.
European Equities Edge Higher
European equities edged higher, with the EURO STOXX 50 up 0.83%, the CAC 40 gaining 1.29% and the DAX rising 1.52%. Meanwhile, the German 10Y Bund yield fell to 3.35%, while Brent crude remained elevated at USD 109/bbl, reflecting persistent geopolitical and energy market concerns.
Source: ECB, Ionic Wealth
