The ECB Governing Council held its monetary policy meeting on February 4-5, 2026, in Frankfurt, reviewing financial, economic, and monetary developments, and maintaining interest rates unchanged.
The European Central Bank (ECB) Governing Council convened on Wednesday and Thursday, 4-5 February 2026, in Frankfurt am Main to review recent financial, economic, and monetary developments.
Ms Schnabel reported that since the previous meeting in December 2025, geopolitical uncertainty had increased, trade policy uncertainty had briefly risen, but financial markets remained relatively contained. Stock market volatility had increased slightly, bond market volatility had remained low, and investor risk appetite was near its highest since 2008.
Market reactions to US tariff threats had been limited, with investors increasingly hedging US dollar exposures and reallocating towards precious metals. The euro appreciated by 1% against the US dollar since December 2025, driven mainly by dollar weakness rather than euro strength. The euro’s exchange rate had decoupled further from interest rate differentials, with most euro appreciation explained by US risk shocks rather than monetary policy expectations.
Economic data indicated resilience in the global economy, with upside surprises in the euro area and US growth. Euro area inflation fixings had been revised up to around 1.8% for the second half of 2026, mainly due to higher oil and metal prices. Expectations for ECB policy rates remained unchanged, with rates expected to stay steady in 2026 and possibly in 2027, with a rate hike priced in for early 2028.
Euro area equities outperformed US stocks since December 2025, supported by a rally in defense stocks amid geopolitical tensions. Sovereign bond spreads narrowed, and spreads in corporate bonds reached record lows. The ECB’s Macro-Finance Financial Conditions Index indicated improved financial conditions driven by higher asset prices and lower real rates.
Money market reserves had declined since November 2022, but market-based funding remained more attractive than Eurosystem refinancing. The euro area economy grew by 0.3% in Q4 2025, driven mainly by services and resilient manufacturing. Domestic demand was expected to support growth, while external headwinds from tariffs and a stronger euro weighed on exports.
Unemployment was at 6.2% in December 2025, with signs of a softening labor market. Bank lending rates for firms increased to 3.6%, and demand for loans was slightly up, but credit standards had tightened, especially in specific sectors. Overall, monetary policy was judged appropriate, with the Council deciding to keep key interest rates unchanged, citing the resilient economy and inflation outlook.
The Governing Council emphasized the importance of data-dependent, meeting-by-meeting policy decisions, maintaining optionality amid high uncertainty. Communication would remain flexible, with a focus on monitoring wage growth, inflation expectations, exchange rates, and financial conditions. The next account of monetary policy is scheduled for 16 April 2026.
