The European Central Bank may keep its 2% interest rate until 2027, as cooling inflation is unlikely to shake its neutral stance.

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The European Central Bank is expected to keep the deposit rate unchanged at 2%, extending the longest period of policy stability since the end of the negative interest rate era. On February 12, a Reuters survey showed that 66 out of 74 economists believe the central bank will remain on hold at least until the end of 2026.

The eurozone's inflation rate dropped to a 16-month low of 1.7% in January. While this has triggered warnings from some policymakers about excessive slowing in prices, the overall economy remains resilient. At its meeting on February 5, the ECB reiterated that inflation is expected to stabilize at its 2% target in the medium term, and emphasized that it will decide on its future path through successive meetings and data dependency, without pre-committing to any specific rate direction.

The continuation of this policy pause will provide a stable monetary environment for the eurozone economy, but also highlights the policy dilemma faced by the central bank in dealing with complex economic conditions.

Record-Setting Length of Policy Pause

The current pause in ECB rates has officially become its longest period of policy stability since the abolition of negative interest rate policy. This stance indicates that the decision-making body believes the current level of interest rates represents the optimal balance between supporting economic recovery and steering inflation back to the 2% target.

Reviewing its policy trajectory, the ECB implemented a negative interest rate policy from 2014 to 2019, with the deposit facility rate staying in negative territory for a prolonged period. Since starting a cycle of rate hikes in 2022 and formally exiting the negative interest era, after several rounds of tightening, it has now entered a sustained period of policy observation, with the length of the pause surpassing any previous stable interval.

Fully Priced in by the Market

Market expectations for the ECB to continue its rate pause have been fully digested. Recent trends in eurozone bond yields and foreign exchange markets show that investors have completely priced in the scenario where the central bank keeps its current policies unchanged.

For the market, the extended period of rate stability means that the financing environment will remain stable for the foreseeable future, providing a relatively clear macro background for corporate and household financial decisions. Currently, the trading focus is shifting from "whether to pause" to "when to pivot." Any incremental signals regarding the future policy path—especially adjustments to assessments of economic growth and inflation prospects—could become key variables triggering market volatility.

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