New 12 months, identical options. The first assembly of the European Central Bank in 2026 has ended with a brand new pause in rates of interest, the fifth in a row, in a choice taken unanimously. With inflation within the euro zone at 1.7%, hovering round that 2% threshold inscribed in bronze letters within the mandate of the establishment chaired by Christine Lagarde, the Governing Council has buried all activism: the final motion was in June, eight months in the past. And Frankfurt doesn’t appear keen to make any strikes within the quick time period. Neither up nor down. During her speech, Lagarde cooled the spirits of those that noticed the autumn in inflation in January as the start of a change in dynamics: she attributed it to the decreasing of power costs as a result of base impact in comparison with the earlier 12 months, she insisted {that a} particular month-to-month determine doesn’t disrupt the underlying development, and he or she repeated that her calculations nonetheless level to inflation at 2% within the medium time period.
With no financial forecasts to current till March, and with the commerce hurricane unleashed by Donald Trump downgraded to a drizzle, stability dominates the scene. The inventory markets proceed within the zone of maximums, with out indicators of fatigue within the monetary markets; The development of the euro zone is resisting on the again of inside demand – the GDP elevated by 1.5% in 2025 – and unemployment, at 6.2%, has by no means been decrease. “The low level of unemployment, the solidity of the private sector balance sheets, the gradual implementation of public spending on defense and infrastructure and the favorable effects of previous interest rate cuts are supporting growth,” the ECB highlighted in its assertion.
In this surroundings of obvious calm, voices are regularly rising within the Government Council that recommend that the enemy is altering its face: it’s now not the excessive inflation that’s worrying, however fairly its reverse, that costs are trending in the direction of stagnation. The fall within the worth of pure gasoline, which influences the formation of electrical energy charges, is contributing to this. And the weak point of the greenback, which has misplaced virtually 14% in opposition to the euro within the final 12 months. Both phenomena present arguments to the sector paloma of the Eurobank, probably the most in favor of accelerating price cuts.
On paper, eager about every little thing changing into inexpensive and even cheaper could seem constructive, however when it results in deflation or approaches it, its penalties are disastrous for the economic system, as a result of it encourages a vicious circle wherein buy selections are postponed, salaries are frozen, and consumption and funding endure.
There is nothing to point that within the quick or medium time period the unfavourable costs seen through the pandemic will return – the ECB’s newest predictions place costs at 1.9% this 12 months and 1.8% subsequent – but when the context adjustments and the downward shift strikes inflation away from the protection margin supplied by 2% – in France, the euro’s second economic system, costs sank to 0.4% in January – the stress for the ECB to decrease charges once more I might return.
There are latent dangers that recommend {that a} larger devaluation of the greenback, and consequently, decrease European inflation, shouldn’t be unreasonable. A Federal Reserve extra supportive of Trump’s needs to chop rates of interest underneath the brand new management of Jerome Powell’s substitute would intensify this depreciation of the buck.
The Euribor is barely reflecting this downward development in inflation. In January it ended its streak of will increase, which means that the opportunity of future downward actions within the worth of cash by the ECB is gaining floor, though nonetheless in a really refined, virtually imperceptible approach. The central state of affairs continues to be a clean 2026, of immobility in charges.
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