Interest rates stay at 4.5% for now. The European Central Bank (ECB) decided not to push rates higher at its Thursday meeting, aligning with expectations. Inflation in the euro area cooled to 4.3% in September, the lowest in two years, which, alongside a growing concern about a broader eurozone recession, supports a pause in rate hikes. Lagarde and the governing council signaled that there is no immediate reason to raise official rates further.
The ECB began raising rates on July 21, 2022, when inflation surged past 10%. Since then, through last September, the ECB has delivered ten rate increases: the initial move was 0.75 percentage points, followed by a string of 0.50 and 0.25 point increments. This uplift brought the policy rate to 4.5%, the highest since 2001, though Lagarde noted that rates are not yet at a ceiling. The central bank’s objective remains to bring inflation down to 2% across the eurozone.
The path to lower inflation requires demand moderation from both firms and households. As Simone Colombelli, mortgages manager at iAhorro, explains, faster price growth paired with high rates can slow the economy, a dynamic already observed in several European nations such as Germany. The ECB’s aim is to temper consumption and investment to restore price stability without triggering a deep downturn.
ECB leaves interest rates unchanged for first time since July 2022
The decision marks a pause after more than a year of tightening. The central bank faces the December meeting with two likely options: hold at 4.5% or consider another small increase. While a fresh 0.25 percentage point rise is on the table, Colombelli expects policymakers to hold steady to avoid worsening the eurozone’s economic outlook. An iAhorro spokesperson notes that the ECB could shift its stance in December to soften consumption ahead of the holiday season and the start of a new year, a crucial period for the economy.
Convergence toward a 2% inflation target varies by country. Some members such as Greece, Norway, Belgium, the Netherlands, and Denmark are at or near the target, while Italy, Germany, Croatia, and Hungary remain above. October and November will be scrutinized to see if the ECB adjusts policy in response to evolving inflation. The Middle East conflict and its impact on energy prices could influence European inflation in the near term.
What will happen at the December meeting?
Christine Lagarde has repeatedly indicated that rate cuts will not occur in 2024 and could be delayed until the middle or end of the year. Ahead of the December 14 meeting, the ECB faces a choice: maintain the current 4.5% level or raise it again. The option of another 0.25 percentage point increase remains a possibility, but the prevailing view among observers is to keep rates unchanged to preserve economic momentum in the euro area. The decision will hinge on inflation trends and external pressures, including energy costs and geopolitical developments.
Colombelli notes that the ECB’s path may depend on how quickly inflation declines and how consumption evolves. The euro area could see banks adjust mortgage offers gradually, considering not only the ECB rate path but also the broader lending environment and risk assessments. The debate centers on balancing price stability with sustainable growth as the year closes and new year plans begin.
Despite divergent progress across member states, the trend toward a 2% target remains in view. The impact of policy choices on the overall economy will be monitored closely, with attention to the timing of future moves and how they affect households and businesses across Europe.
How will the ECB’s decision affect mortgage holders?
Banks have begun modestly adjusting their loan offers in response to the ECB’s stance, sometimes nudging rates up or down, but not in lockstep with official rate changes. The director of iAhorro Mortgages explains that a single 0.25 percentage point shift does not necessarily translate into identical changes for mortgage products. Banks tailor pricing to their targets rather than to a fixed link with Euribor or ECB levels.
Historically, Euribor has shown relative resilience this year, staying elevated compared with the ECB’s policy rate. The current spread between Euribor and the ECB rate has narrowed, but a renewed rate climb could widen that gap again. This divergence would influence variable-rate mortgages indexed to Euribor more than fixed or mixed-rate loans, potentially making some products more expensive in the near term. The ECB’s course will continue to shape mortgage conditions in the months ahead.
As the central bank maintains an upward line, Euribor is likely to move higher in tandem, affecting variable-rate mortgages tied to the benchmark. Banks may adjust offerings in response to shifts in the policy rate, the Euribor trajectory, and overall macroeconomic expectations. The mortgage manager at iAhorro suggests keeping the net interest rate around a modest level to avoid pushing variable products beyond 4 percent. This approach could influence lenders to adjust terms gradually as December decisions unfold and early next year plans take shape.