Martin Lamberts/ECB
European Central Bank, Frankfurt
For the third time in a row, the European Central Bank has left its key interest rates unchanged, keeping the deposit rate at 2.0 per cent. The Governing Council met, unusually, in Florence rather than Frankfurt, a fitting backdrop for a decision rooted in caution rather than boldness.
The markets had hoped for a hint of a cut, especially after the US Federal Reserve reduced rates for the second time this year. Instead, Christine Lagarde chose to wait. Inflation in the eurozone has settled close to target, at 2.1%, while growth remains slightly positive at 0.2% in the third quarter. With France in political turmoil, US tariffs still casting a shadow, and China threatening export restrictions on rare earths, the ECB preferred to avoid surprises.
The central bank’s language was careful and deliberate. Inflation is “broadly under control,” it said, but the Governing Council “does not commit itself in advance to a specific interest rate path.” That is central-bank speak for keeping all options open. Bundesbank president Joachim Nagel went further, saying there was “no need for action at present.”
Financial markets took the news calmly. Bond yields barely moved, and the euro remained stable. Overnight and term-deposit rates rose slightly, though inflation continues to erode returns. The average overnight rate is 1.28%, leaving savers with negative real yields. Mortgage markets remain locked in what brokers call “sideways movement.” Dr. Klein’s benchmark ten-year fixed-rate mortgage stood at 3.28% in late October, almost unchanged since January.
According to Florian Pfaffinger of Dr. Klein, the pattern is “stable but uninspired.” Global events are pushing yields down briefly, he said, before they return to previous levels. Banks’ loan books are already full toward year-end, which means lower swap rates are only partly passed on to borrowers.
For real estate investors, this period of stability is at least a relief from the turbulence of the past two years. Francesco Fedele, CEO of BF.direkt, described the ECB’s stance as “understandable and correct.” He added that a hasty rate cut “would have raised false expectations and undermined credibility. Stability is now the order of the day, both for the capital markets and for real estate financing.”
Professor Steffen Sebastian of IREBS also welcomed the restraint. “While the US lowers rates to stimulate growth, the ECB’s discipline will ultimately strengthen Europe’s financial system and the real estate sector,” he said. Stefan Hoenen of Hamburg Commercial Bank drew a similar conclusion: “For commercial real estate investors, this decision creates a stable basis for calculation and greater planning security for long-term commitments.”
Relief without revival
Yet stability alone will not revive the property market. Lending margins remain wide, and refinancing costs are still roughly double their pre-2022 levels. Developers who relied on cheap leverage are still on the sidelines, while equity-rich investors have returned only to the safest and greenest assets. The ECB’s caution may have reduced volatility, but it has not yet reignited activity.
Lagarde insists the bank retains “room to react” if conditions change. Inflation risks persist, particularly in services, where wage pressures remain stubborn. Fiscal policy is now carrying more of the load. Germany’s proposed €500 billion infrastructure programme could prove far more important to the economy than any move by the ECB in the near term.
Some analysts still expect a modest cut early next year if inflation continues to ease. But December’s final meeting is likely to confirm what the Florence gathering already signalled: Europe’s monetary winter has begun early and will last.
For the real estate sector, this is not the worst outcome. Predictability is welcome after a period of violent repricing. Stable policy allows lenders and borrowers to plan again, even if the cost of money remains high. But it also means that recovery will depend less on the central bank and more on politics, confidence and fiscal action.
REFIRE: The ECB has pressed pause again, choosing patience over drama. For investors, that means a longer holding pattern and fewer catalysts for repricing. The cost of capital may have stabilised, but liquidity remains scarce and refinancing risks are still real. Those betting on a rapid policy reversal will need more endurance than optimism. Until the ECB sees clear evidence of disinflation, investors should expect Europe’s real estate recovery to depend less on cheap money and more on asset quality, tenant strength and disciplined leverage.