ECB expected to hold rates as stronger euro adds new pressure

ISTANBUL

The European Central Bank (ECB) is not expected to change its policy rates in the medium term with the rise of the euro potentially influencing the bank’s decision.

The ECB is widely speculated to maintain its rates at its February meeting and continue this stance for some time.

Data showed that the economic activity in the region remained in good shape but the rise of the euro is expected to influence the bank’s decision due to its deflationary effect.

Peter Vanden Houte, chief economist at the ING Group, told Anadolu that the eurozone grew 0.3% in the last quarter of 2025, while the EU Commission’s economic confidence index was better than expected in January.

“Economic data plead for stability in interest rates,” he said. “At the same time inflation continues to hover around 2%. All of this will reassure the ECB that they are still ‘in a good place’ in terms of monetary policy.”

Houte stated that the recent developments in the exchange rate and the ECB’s “good place” are starting to become “a little less comfortable,” as the weakening US dollar and the resulting strengthening of the euro caused some unease at the bank.

He noted that the French central bank governor, Francois Villeroy de Galhau, implied the strengthening of the euro may be a key factor in guiding policy in the coming months.

“The ECB staff published a risk scenario in December, where they computed that a euro appreciation to 1.25 against the dollar would reduce inflation with 0.2 percentage points,” said Houte. “If we would see this level, I can imagine that the pressure to cut rates again will strongly increase. But we are not there yet. If the dollar stabilizes around 1.20, which we believe, the ECB will most likely keep interest rates at the current level for some time to come.”

Marco Wagner, senior economist at Commerzbank, told Anadolu that the ECB’s policy meeting is expected to be “fairly unspectacular,” noting that no rate adjustments are expected, while the euro/US dollar exchange rate is estimated to average 1.16.

“If the euro remains strong and the dollar weak, this could gradually have an impact on the ECB's economic and inflation projections,” he said. “In this respect, it remains to be seen how the ECB Governing Council members will assess these market movements.”

Bas van Geffen, senior macro strategist at Rabobank, told Anadolu that he expected the ECB to maintain rates until 2026, saying that “the euro’s gains may draw some verbal intervention, but we believe the currency can appreciate quite a bit further before it would warrant another cut.”

Alain Durre, head of Europe macro research at Natixis, told Anadolu that the ECB will keep its rates unchanged at its February meeting, as it needs “the combination of a persistently strong euro and materially lower energy prices” for a rate cut.

“The crucial factor in our assessment is that the disinflationary impact from euro appreciation is more durable than the inflationary pressure from volatile energy prices,” he added.

Jan-Paul van de Kerke, senior economist for the Netherlands and the eurozone at ABN AMRO, told Anadolu that the euro’s recent strengthening is largely due to the weakening US dollar.

He noted that the ECB will likely not target the exchange rate directly but will monitor currency movements affecting growth and inflation.

“Our base case already sees the EUR/USD moving higher this year, but nonetheless, we expect monetary policy to stay on hold,” he added.

*Writing by Emir Yildirim