European Central Bank interest rate decision tonight! Expected to hold steady for the fifth consecutive time, geopolitical tensions and a strong Euro are the biggest concerns.

The European Central Bank (ECB) will announce its latest interest rate decision on Thursday at 21:15 Beijing time. Despite escalating global tensions and a strengthening euro, the ECB believes that these factors have not derailed the economy, and is expected to keep rates unchanged for the fifth consecutive time at this policy meeting. A survey of economists shows that all respondents expect the ECB to maintain the deposit facility rate at 2% on Thursday. Meanwhile, analysts and markets expect the ECB to keep this rate unchanged until the end of next year, with the possibility of a rate hike in 2026 decreasing. ECB policymakers are grappling with a series of complex events at the start of 2026, including threats to the independence of the Federal Reserve in the United States, the forced arrest of Venezuelan President Maduro, and the latest threat from US President Trump to impose tariffs, this time targeting Greenland. The result has been a weakening of the US dollar, temporarily pushing the euro to its highest level since 2021. While the European economy appears to be on solid ground, this could cause trouble for exporters in the region and further push inflation below the ECB's 2% target, although recent increases in oil and natural gas prices are offsetting this risk. With no new economic forecasts available to guide its decisions, ECB President Lagarde may maintain policy flexibility during the press conference following the announcement of the interest rate decision. Evelyn Herman, an economist at Bank of America, said, "The ECB may not take strong views on the rise in exchange rates or energy costs, as its challenges in forecasting remain limited. They may emphasize more on the issue of rising uncertainties since the start of the year." Interest Rates The ECB currently has little willingness to adjust borrowing costs. The ECB's chief economist, Philip Lane, said the latest forecasts suggest there is no "near-term interest rate debate." Bundesbank President Joachim Nagel also agreed with this view. Executive Board member Piero Chirollo believes that despite uncertainties, the ECB is "undoubtedly in a favorable position". Economists David Powell and Simona Delai-Jaye said, "Europe started this year in geopolitical turmoil, and the ECB may continue to focus on the big picture rather than the details. This means it is likely to ignore recent issues involving Greenland in the US trade dispute, inflation rates slightly below the 2% target, and the strengthening of the euro." However, ECB officials also recognize that the situation can change rapidly. Austrian Central Bank President Martin Koch emphasized the need to maintain "complete discretion," saying policies must be able to respond "quickly and decisively" to risks. While investors also expect the ECB to not adjust rates at this meeting, they believe there is a greater likelihood of further rate cuts this year, with market pricing indicating a higher probability of rate hikes further in the future. Strong Euro The recent rise of the euro has become a key risk to the economic prospects of the ECB, which expects inflation to drop below 2% in the next two years. A strong euro presents headwinds for exporters and may dampen growth, while also lowering import costs. Franois Villeroy De Galhau, Governor of the Bank of France, said officials are "closely monitoring" the situation, which is one of the factors that will guide our monetary policy and rate decisions in the coming months. Koch also emphasized the importance of observing whether the upward trend of the euro will continue. After Trump chose Kevin Wash to replace Jerome Powell as Federal Reserve Chairman, the dollar regained some lost ground earlier, easing some of the pressure on the euro's appreciation. The market believes that compared to other candidates, Wash is more inclined to tackle inflation. In addition, the euro's appreciation against a broader basket of currencies used by eurozone trading partners is also less pronounced. Economic Updates Since the last ECB policy meeting, the euro area inflation rate has fallen below the ECB's target, dropping to 1.7% in January. While core price growth remains stubborn, there was a slight easing last month, and the rate of increase in service prices also slowed slightly. The economy has also shown resilience, growing by 0.3% in the fourth quarter of 2025 - higher than the ECB's expectations. Since then, business surveys show that the economy continues to grow moderately.