ECB holds rates at 2.5% as Lagarde says she will step down in February
The European Central Bank kept its deposit rate at 2.5% on October 29, 2026, warned that soaring energy costs are raising inflation risks, and confirmed that President Christine Lagarde will leave on February 7, 2027 — about nine months early.
At a glance
- The ECB left its three key interest rates unchanged on Thursday, October 29, 2026: deposit facility 2.50%, main refinancing 2.65%, marginal lending 2.90%.
- The bank said energy prices have kept rising, posing upside risks to inflation and downside risks to growth — a signal markets read as keeping a December hike on the table.
- Hours before the decision, the ECB announced that Christine Lagarde will step down as president on February 7, 2027, about nine months before her term ends.
- The euro slipped about 0.2% to around $1.113, its weakest level since May, while two-year bond yields fell and the STOXX 600 rose almost 1%.
- Former Bank of Spain governor Pablo Hernández de Cos and former Dutch central bank chief Klaas Knot are seen as the front-runners to succeed her.
The European Central Bank left interest rates unchanged on Thursday, October 29, 2026, holding its deposit rate at 2.5% while warning that surging energy costs are pushing inflation risks higher. The decision was overshadowed by an announcement made hours earlier: ECB President Christine Lagarde will step down on February 7, 2027, roughly nine months before the end of her eight-year term, opening a race to lead the central bank of the euro area.
The decision in full
The Governing Council kept all three of its key rates at the levels set when it raised borrowing costs by a quarter point in September. In its statement, the bank said energy prices have continued to rise, creating upside risks to the inflation outlook and downside risks to growth. Analysts said the wording left the door open to another increase at the next meeting in December.
| ECB key rate | Level after October 29, 2026 | Change |
|---|---|---|
| Deposit facility rate | 2.50% | Unchanged |
| Main refinancing operations | 2.65% | Unchanged |
| Marginal lending facility | 2.90% | Unchanged |
| Last move | +0.25 points, September 10, 2026 (effective Sept 16) | — |
| Next policy meeting | December 17, 2026 (with new staff projections) | — |
October was a meeting without new economic projections. In September, ECB staff forecast headline inflation of 3.0% for 2026, easing to 2.5% in 2027 and 2.1% in 2028, with underlying inflation (excluding energy and food) at 2.5% this year and 2.6% next year — all above the bank's 2% target.
Lagarde's early exit
The ECB said Lagarde had informed the Governing Council and European Council President António Costa of her decision, and that council members gave her a standing ovation. The bank gave no official reason. People familiar with her thinking said she wants more freedom to speak out on issues beyond monetary policy, given developments in France and the wider world.
Earlier reports had suggested she might leave early so that French President Emmanuel Macron and German Chancellor Friedrich Merz could oversee the choice of her successor before France's presidential election in April 2027, in which the far-right National Rally has been polling strongly. Bank of France Governor François Villeroy de Galhau has also announced he will leave in February.
Lagarde, a former French finance minister and head of the International Monetary Fund, took over the ECB in November 2019. Her presidency covered the COVID-19 pandemic, the energy shock after Russia's full-scale invasion of Ukraine, the sharpest rate-hiking cycle in the euro's history, a series of cuts in 2024–25 and, this year, a return to hikes as the Middle East war sent oil prices soaring.
Who could succeed her
Costa said the appointment process would start immediately. The European Council chooses the president by qualified majority on a recommendation from EU finance ministers, after consulting the European Parliament and the ECB's Governing Council.
| Candidate | Background |
|---|---|
| Pablo Hernández de Cos | Former Bank of Spain governor, general manager of the Bank for International Settlements since 2025; Spain's nominee |
| Klaas Knot | Governor of the Dutch central bank, 2011–2025 |
| Joachim Nagel | Bundesbank president; Germany has never held the ECB presidency |
The race comes during a wider reshuffle. Executive board member Isabel Schnabel leaves on January 3, 2027, to join the IMF, and chief economist Philip Lane's term ends on May 31, 2027. Investors said both front-runners would be expected to offer policy continuity.
Market reaction
The euro fell about 0.2% to around $1.113, its weakest level since May. Rate-sensitive two-year government bond yields dropped sharply, and Europe's STOXX 600 share index gained about 0.95%. Traders had already priced in a possible rate rise in December, and the statement strengthened those bets.
Reactions
European Commission President Ursula von der Leyen thanked Lagarde, saying her "steady hand" had kept the economy stable through the pandemic and Russia's war. Costa praised her dedication since November 2019. Fund managers noted that her timing means the next French president will not have a say in choosing her replacement.
Why it matters
ECB decisions set borrowing costs for about 350 million people in the euro area, from mortgages in Spain to business loans in Germany. Energy-driven inflation and stress in France's bond market — where investors are worried about the country's debt — are the bank's two biggest headaches, and some analysts say it may need to consider its never-used Transmission Protection Instrument to calm sovereign bond markets.
For Pakistan and South Asia, a weaker euro and higher European rates matter through trade: the EU is one of Pakistan's largest export markets, especially for textiles under the GSP+ scheme, and euro-area demand affects orders for garments, home textiles and leather goods.
What happens next
- December 17, 2026: next ECB meeting, with new forecasts; a rate hike is possible.
- November 27, 2026: extended deadline for candidates for Schnabel's executive board seat.
- Coming weeks: EU finance ministers begin the process of recommending Lagarde's successor.
- February 7, 2027: Lagarde's last day as ECB president.
Questions people are asking
Did the ECB change interest rates in October 2026?
No. At its October 29, 2026 meeting the ECB kept the deposit facility rate at 2.50%, the main refinancing rate at 2.65% and the marginal lending rate at 2.90%, the levels set by its September hike.
When is Christine Lagarde leaving the ECB?
Lagarde will step down as ECB president on February 7, 2027, about nine months before her eight-year term was due to end in late 2027. The ECB did not give an official reason.
Who will replace Lagarde as ECB president?
No successor has been chosen yet. Pablo Hernández de Cos, head of the Bank for International Settlements and Spain's nominee, and Klaas Knot, former governor of the Dutch central bank, are widely seen as the leading candidates; EU leaders make the final appointment.
