ECB Holds Rates at 2.50% as Lagarde Announces Early Exit in February

SentiSense · Published Oct 29, 2026, 9:15 AM ET · Updated Oct 29, 2026, 4:58 PM ET

The European Central Bank left its deposit rate at 2.50% on October 29 after debating a hike, warning that surging energy prices pose upside risks to inflation, which hit 3.8% in September. Hours earlier, President Christine Lagarde said she will step down after the February 2027 policy meeting, roughly eight months before her term ends in October 2027, opening a succession race as markets price a likely December hike.

The European Central Bank kept its three key interest rates unchanged on Thursday, holding the deposit facility rate at 2.50%, where it has stood since the second of two quarter-point hikes this year, in September. Reuters described the hold as well telegraphed, but the bank warned that inflation risks were rising from surging energy costs, a message that may solidify market bets on a December increase. In its statement the ECB said energy prices "have continued to rise, posing upside risks to the inflation outlook and downside risks to the growth outlook," and it did not pre-commit to a rate path.

The numbers behind that warning are stark. Euro-area inflation rose to 3.8% in September from 3.2% in August, with energy inflation jumping to 18.9%, while inflation excluding energy edged up to 2.3%, according to the ECB's monetary policy statement. At the press conference Lagarde said the Governing Council "debated whether a hike was appropriate" before deciding unanimously to hold, and added that, barring a major development, "the direction of travel is quite clear." Money markets priced roughly a 67% chance of a December hike after the decision, CNBC reported citing LSEG data.

The decision came only hours after Lagarde said she would leave office on February 7, months before her tenure was due to end. She told reporters her term would have ended in October 2027 and that she is leaving early to have "the freedom to engage on matters that are not monetary policy matters." Reuters has reported that the World Economic Forum could name her its next chair as soon as November. AFP reported that former Dutch central bank chief Klaas Knot and Bank for International Settlements head Pablo Hernandez de Cos are seen as frontrunners, with chief economist Philip Lane and board member Isabel Schnabel also due to be replaced, and that EU leaders may try to fill the posts as a package by the December 17-18 summit.

For markets, the near-term questions are whether the ECB delivers a third hike in December, when a new set of staff projections arrives, and how a leadership change lands while France pays a decades-high premium of about 155 basis points over Germany to borrow for 10 years. Deutsche Bank expects one more hike to 2.75% in December while Lagarde is still president, CNBC reported, a path that would bear on euro-area bond yields and euro-sensitive stocks such as European banks.