ECB Holds Rates Steady as Christine Lagarde Announces Resignation

The European Central Bank maintained its key deposit rate at 2.5% on October 29, 2026, keeping the main refinancing rate at 2.65% and the marginal lending rate at 2.90%. This decision follows a 25 basis point increase in September and aligns with market expectations. The Governing Council cited rising energy prices, driven by turbulence in the Middle East and the U.S.-Israeli war with Iran, as primary drivers of inflation. Headline inflation in the euro area reached 3.8% in September, nearly double the bank's 2% target, with energy price inflation hitting 18.8%.

While the bank noted that underlying inflation and wages have remained broadly stable, officials warned that energy shocks pose upside risks to inflation and downside risks to economic growth. The decision occurred amid a fiscal crisis in France, where 10-year borrowing costs have climbed above 5%. The ECB declined to pre-commit to future moves, though policymakers are widely expected to hike rates in December following updated economic projections.

Simultaneously, ECB President Christine Lagarde announced she will step down on February 7, 2027, approximately nine months before her term expires. Reports link her early departure to the upcoming April 2027 French presidential election. Potential successors identified include Pablo Hernández de Cos, General Manager of the Bank for International Settlements, and Klaas Knot, former president of the Dutch central bank.