site.btaECB Expected to Keep Key Interest Rates Unchanged at First Meeting After Bulgaria Joins Euro Area

On the second day of its two-day policy meeting, the European Central Bank (ECB) is expected to keep its key interest rates unchanged, analysts forecasts, amid easing inflationary pressures in the euro area. The decision, due to be announced later on Thursday, will be historic for Bulgaria: for the first time, the country is officially participating in ECB decision-making as a full member of the euro area. The announcement will be followed by the regular press conference of ECB President Christine Lagarde.

Bulgaria joined the euro area on January 1, 2026, and Bulgarian National Bank Governor Dimitar Radev has taken his seat on the ECB’s Governing Council. This follows his participation as an observer at the Council’s meetings starting in September last year.

Preliminary Eurostat data for January show that inflation in the euro area slowed to 1.7%, its lowest level since September 2024, largely due to falling energy prices. Core inflation, which excludes highly volatile components such as energy and food, also edged down slightly to 2.2%. Analysts say this combination of indicators does not point to an imminent change in monetary policy.

At its December meeting, the ECB left interest rates unchanged for a fourth consecutive time, with the deposit facility rate, the euro area’s key policy rate paid to commercial banks for overnight deposits at the central bank, at 2.0%. The rate on main refinancing operations, which banks pay when borrowing funds from the ECB for one week, remained at 2.15%, while the marginal lending facility rate, which allows banks to borrow overnight from the ECB, stood at 2.40%. The Frankfurt-based institution had cut its key rates by a cumulative two percentage points by June 2025 from a record high of 4.0% reached in 2023 amid surging inflation.

Commenting ahead of the meeting, Paul Mackel, Global Head of FX Research at HSBC, said that Lagarde is likely to reiterate that the central bank does not target the exchange rate, but may hint at how US administration policies could contribute to a stronger euro. He added that the strength of the single currency is expected to be one of the central topics of the policy meeting.

Mackel’s forecast comes as the euro reached its highest level since mid-2021 at the end of January 2026, appreciating to USD 1.2049.

In an analysis published earlier this week, economists at ING said recent movements in currency markets and the decline in energy prices have created a more favourable backdrop for the ECB ahead of the meeting. According to them, some easing in foreign exchange dynamics and lower energy costs have reduced short-term pressure on monetary policy, although heightened volatility in recent weeks underscores the need for a cautious approach. The analysis notes that the tone of today’s press conference may offer clues about the ECB’s readiness to respond to changing conditions in the coming months.

A Reuters poll conducted in December showed that all participating economists expect the ECB’s deposit rate to remain at 2.0%, with the majority not anticipating any changes at least until mid-2026 and many not until the end of the year.

The ECB Governing Council consists of the six members of the Executive Board and the governors of the national central banks of the euro area. With Bulgaria’s accession, the number of national central banks represented on the Council has risen to 21. Governors’ voting rights are exercised through a rotation system; however, even when they do not have a vote at a particular meeting, all governors participate fully in the discussions and the shaping of policy decisions.