Monetary policy statement (with Q&A)
Central bank: ecb | Type: press_conference | Date: 2025-09-11

INTRODUCTORY STATEMENT

Good afternoon, the Vice-President and I welcome you to our press conference.
The Governing Council today decided to keep the three key ECB interest rates unchanged. Inflation is currently at around our two per cent medium-term target and our assessment of the inflation outlook is broadly unchanged.
The new ECB staff projections present a picture of inflation similar to that projected in June. They see headline inflation averaging 2.1 per cent in 2025, 1.7 per cent in 2026 and 1.9 per cent in 2027. For inflation excluding energy and food, they expect an average of 2.4 per cent in 2025, 1.9 per cent in 2026 and 1.8 per cent in 2027. The economy is projected to grow by 1.2 per cent in 2025, revised up from the 0.9 per cent expected in June. The growth projection for 2026 is now slightly lower, at 1.0 per cent, while the projection for 2027 is unchanged at 1.3 per cent.
We are determined to ensure that inflation stabilises at our two per cent target in the medium term. We will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance. In particular, our interest rate decisions will be based on our assessment of the inflation outlook and the risks surrounding it, in light of the incoming economic and financial data, as well as the dynamics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a particular rate path.
The decisions taken today are set out in apress releaseavailable on our website.
I will now outline in more detail how we see the economy and inflation developing and will then explain our assessment of financial and monetary conditions.
The economy grew by 0.7 per cent in cumulative terms over the first half of the year, on account of the resilience in domestic demand. The quarterly pattern showed stronger growth in the first quarter and weaker growth in the second quarter, partly reflecting an initial frontloading of international trade ahead of expected tariff increases and then a reversal of that effect.
Survey indicators suggest that both manufacturing and services continue to grow, signalling some positive underlying momentum in the economy. Even if demand for labour is softening, the labour market remains a source of strength, with the unemployment rate at 6.2 per cent in July. Over time, this should boost consumer spending, especially if, as foreseen in the staff projections, people save less of their income. Consumer spending and investment should benefit from our past interest rate cuts feeding through to financing conditions. Investment should also be underpinned by substantial government spending on infrastructure and defence.
Higher tariffs, a stronger euro and increased global competition are expected to hold growth back for the rest of the year. However, the effect of these headwinds on growth should fade next year. While recent trade agreements have reduced uncertainty somewhat, the overall impact of the change in the global policy environment will only become clear over time.
The Governing Council considers it crucial to urgently strengthen the euro area and its economy in the present geopolitical environment. Fiscal and structural policies should make the economy more productive, competitive and resilient. One year on from the release of Mario Draghi’s report on the future of European competitiveness, it remains essential to follow up on its recommendations with further concrete action and to accelerate implementation, in line with the European Commission’s roadmap. Governments should prioritise growth-enhancing structural reforms and strategic investment, while ensuring sustainable public finances. It is critical to complete the savings and investments union and the banking union, to an ambitious timetable, and to rapidly establish the legislative framework for the potential introduction of a digital euro.
Annual inflation remains close to our target, edging up to 2.1 per cent in August from 2.0 per cent in July. Energy price inflation was -1.9 per cent, after -2.4 per cent in July, while food price inflation declined to 3.2 per cent from 3.3 per cent. Inflation excluding energy and food stayed constant at 2.3 per cent. Services inflation edged down to 3.1 per cent, from 3.2 per cent in July, while goods inflation was unchanged at 0.8 per cent.
Indicators of underlying inflation remain consistent with our two per cent medium-term target.Year-on-year growth in compensation per employee was 3.9 per cent in the second quarter, down from 4.0 per cent in the previous quarter and 4.8 per cent in the second quarter of last year. Forward-looking indicators, including the ECB’s wage tracker and surveys on wage expectations, suggest that wage growth will moderate further. Along with productivity gains, this will help keep a lid on domestic price pressures, even as profits recover from low levels.
Looking ahead, the staff projections see food inflation dropping from 2.9 per cent in 2025 to 2.3 per cent in 2026 and 2027. Energy price inflation is expected to remain volatile, but rise over the projection horizon, in part because of the start of the EU Emissions Trading System 2 in 2027. Inflation excluding energy and food is expected to fall from 2.4 per cent in 2025 to 1.9 per cent in 2026 and 1.8 per cent in 2027, owing to the stronger euro and declining labour cost pressures.
Most measures of longer-term inflation expectations continue to stand at around 2 per cent, supporting the stabilisation of inflation around our target.
Risks to economic growth have become more balanced. While recent trade agreements have reduced uncertainty, a renewed worsening of trade relations could further dampen exports and drag down investment and consumption. A deterioration in financial market sentiment could lead to tighter financing conditions, greater risk aversion and weaker growth. Geopolitical tensions, such as Russia’s unjustified war against Ukraine and the tragic conflict in the Middle East, remain a major source of uncertainty. By contrast, higher than expected defence and infrastructure spending, together with productivity-enhancing reforms, would add to growth. An improvement in business confidence could stimulate private investment. Sentiment could also be lifted and activity spurred if geopolitical tensions diminished, or if the remaining trade disputes were resolved faster than expected.
The outlook for inflation remains more uncertain than usual, as a result of the still volatile global trade policy environment. A stronger euro could bring inflation down further than expected. Moreover, inflation could turn out to be lower if higher tariffs lead to lower demand for euro area exports and induce countries with overcapacity to further increase their exports to the euro area. Trade tensions could lead to greater volatility and risk aversion in financial markets, which would weigh on domestic demand and would thereby also lower inflation. By contrast, inflation could turn out to be higher if a fragmentation of global supply chains pushed up import prices and added to capacity constraints in the domestic economy. A boost in defence and infrastructure spending could also raise inflation over the medium term. Extreme weather events, and the unfolding climate crisis more broadly, could drive up food prices by more than expected.
Since our last meeting short-term market rates have increased, while longer-term rates have remained broadly unchanged. However, our past interest rate cuts continued to lower corporate borrowing costs in July. The average interest rate on new loans to firms moved down to 3.5 per cent in July, from 3.6 per cent in June. The cost of issuing market-based debt was unchanged, at 3.5 per cent. Loans to firms grew by 2.8 per cent, slightly more strongly than in June, while the growth of corporate bond issuance rose to 4.1 per cent from 3.4 per cent. The average interest rate on new mortgages was again unchanged at 3.3 per cent in July, while growth in mortgage lending picked up to 2.4 per cent, from 2.2 per cent.
The Governing Council today decided to keep the three key ECB interest rates unchanged. We are determined to ensure that inflation stabilises at our two per cent target in the medium term. We will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance. Our interest rate decisions will be based on our assessment of the inflation outlook and the risks surrounding it, in light of the incoming economic and financial data, as well as the dynamics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a particular rate path.
In any case, we stand ready to adjust all of our instruments within our mandate to ensure that inflation stabilises sustainably at our medium-term target and to preserve the smooth functioning of monetary policy transmission.
Economists believe the ECB’s easing cycle is over. With the outlook broadly unchanged, as you mentioned, would you say they’re right and would you say everybody on the Governing Council agrees on that assessment? My second question is about inflation. You mentioned a whole bunch of inflation risks. Would you say they are balanced?
Let me say this: the disinflationary process is over, and I’m referring here to the causes for inflation that we have experienced in the last few quarters. So, in anticipation of the possible questions, are we still in a good place? Well, we continue to be in a good place. Now, why do I say that? Because inflation is where we want it to be. Latest reading: 2.1%, 2%to 2.1%. Medium-term outlook: on target. The domestic economy is showing resilience, the labour market is solid, and risks are more balanced. But when I say that we are and continue to be in a good place, am I saying that we are on a predetermined path? No. Because in the same breath of air, I say that we decide meeting-by-meeting, that we are data-dependent and that we will decide accordingly in order to make sure that we stay in a good place. So I hope I’m making myself clear in that respect. We continue to be in a good place, but we are not on a predetermined path and we will take stock, meeting-by-meeting, to look at all the data – the outlook, the projections – that we receive in order to make sure that we stay in a good place. Does everybody agree with that? I never want to overstretch the general agreement in the room, but we had a unanimous decision by the Governing Council today to leave all three interest rates unchanged. And we discussed, of course, the projections. We discussed the risks, but I think that what I have just formulated for you is something that was agreed unanimously around the table. On your second question, which deals with the risks to inflation, we don’t actually narrow down the risks to inflation exclusively. We assess the risks on activity, on growth. And that’s where we say in our statement that risks are more balanced. But we don’t nail down a risk diagnosis on inflation in isolation. But I’d be happy to come back to why we are more balanced. Maybe somebody else will ask that question.
I will just follow up on that question. Why do you think risks are more balanced now, given the uncertainty still, which we see elsewhere in the world? And of course, I need to ask you about France. We’ve seen, of course, that the political situation and the unstableness of the country has driven bond yields quite high. How concerned are you about a déjà vu, which we had some years ago? Not with France, but with other countries.
You said that inflation is projected to be at target over the medium term, yet the projection for 2027 is at 1.9%, so below 2% for the second year in a row. So where does below target start? And the second question is again about France. In terms of the specific rules of TPI, how far are we from a disorderly and unwarranted move on the bond market?
Let’s go to the inflation projections, if you will, because that’s your first question. We have projections for 2025, 2026 and 2027. For 2025 and 2026, we have increased by 0.1 percentage point our projection. So for 2025, our projection is now 2.1%, and we’ve increased it by 0.1 percentage point. In 2026, we are now at 1.7%. In 2027, we are at 1.9%. And, first of all, it’s a big 1.9%, I hasten to add. But it’s really on account of the exchange rate impact with the lag effect that it usually has, and this is factored into our projections. That explains to you the fat 1.9%. We have indicated very clearly in our strategy that minimal deviations – if they remain minimal and not long-lasting – will not necessarily justify any particular movement. On the second question that you asked me, and this relates to France I suppose, I’m going to tell you the same thing. I’m not commenting on any particular country. But suffice to say that we always monitor market developments, and euro area sovereign bond markets are orderly and are functioning smoothly with good liquidity. That’s what we see. Our focus is, as you know, price stability, but we need financial stability for that, and it requires a well-functioning monetary policy transmission mechanism. And we believe that we have all the necessary tools, if needed, should that transmission not prove efficient throughout the entire euro area.
Do you consider that quantitative tightening significantly contributes to the monetary policy stance, and to what extent does it reinforce tighter financial conditions or not? And do you consider that a widening of certain spreads relative to German bonds will pose a serious threat to the transmission of monetary policy, and in such a case could this trigger the use of the TPI even in case of major fiscal challenges for some countries?
On your first question, in the situation where we are of this disinflationary process and having increased rates from minus 50 basis points to 400 basis points, the most efficient and primary tool that we use for monetary policy stance is the interest rates. And we have cut interest rates by 200 basis points over the last 12 months or so. The fact that we are not reinvesting and that we are letting our portfolio on a run-off mode is proceeding smoothly. We had telegraphed it very carefully. It was anticipated, it was predictable, and I think that everyone who cares about those issues knows exactly how this proceeds and what very limited impact it has. That’s a resolution that that we have made, that we have explained very clearly to markets and it is proceeding accordingly. As I said, we are always monitoring financial market developments. As I said as well, euro area sovereign bond markets are orderly and are functioning smoothly with good liquidity. If you observe the spreads, they have considerably tightened over the course of the last two years, and the spreads relative to bonds have a rather limited width between the other Member States relative to German bonds.