European Central Bank holds rates steady as economy shows resilience

The European Central Bank has kept interest rates on hold, as expected, at its latest meeting on Thursday.

The central bank held its key deposit facility rate at 2% for the third consecutive time, having last cut rates in June. The trim, which coincided with euro zone inflation hitting the ECB's target rate of 2%, was part of a rate-cutting cycle that has brought rates down from last year's record high of 4%.

The ECB said in a statement Thursday that "inflation remains close to the 2% medium-term target and the Governing Council's assessment of the inflation outlook is broadly unchanged." "The economy has continued to grow despite the challenging global environment. The robust labour market, solid private sector balance sheets and the Governing Council's past interest rate cuts remain important sources of resilience," it said.

It cautioned, however, that "the outlook is still uncertain, owing particularly to ongoing global trade disputes and geopolitical tensions."

While the euro zone inflation rate inched up to 2.2% in September, up from 2% the previous month, the rise was attributed to an increase in services prices and economists had said the central bank was likely to remain cautious about meddling with rates right now.

Expectations that the ECB would keep rates on hold were reinforced earlier Thursday when preliminary euro zone growth data showed the economy had grown 0.2% in the third quarter, from the previous three month period. The figure was above expectations and showed that economic activity remained resilient, despite prevailing uncertainty over business activity following U.S. trade tariffs.

ECB President Christine Lagarde told reporters that while the services sector continued to grow — boosted by strong tourism and a pick-up in digital services — manufacturing had been "held back by higher tariffs, still heightened uncertainty and a stronger euro."

She added that the divergence between external and internal demand is "likely to persist" in the near term. "The economy should benefit from consumers spending more as real incomes rise," Lagarde noted.

"From a monetary policy point of view, we are in a good place," Lagarde told CNBC's Annette Weisbach. "Is it a fixed, good place? No. But we will do whatever is needed to make sure we stay in a good place."

After the ECB's announcement, the euro reversed earlier gains to trade 0.26% below the dollar, at $1.1571.

"What a boring announcement," Mike Coop, chief investment officer of EMEA at Morningstar Wealth, told CNBC Thursday.

"It does belie the fact that inflation actually has gone back to being pretty much well behaved ... so it's hardly surprising that they're not feeling in a rush to change rates," he told CNBC's "Decision Time."

"The bigger picture, I think, is that Europe is still adapting to the triple shocks of the removal of cheap energy, worse trade terms with the U.S. and the need to spend more on defense. On top of those three things, you also have now the U.S. sucking investment out of other parts of the world, so Europe hasn't had that stimulus, that we've seen in the U.S., to support growth," he told CNBC's Karen Tso.

The central bank has repeatedly said it will take a meeting-by-meeting and data dependent approach to rate setting, and it repeated this stance on Thursday. However, top ECB board members told CNBC this month that the easing cycle is close to, or at its end.

Martin Kocher, European Central Bank Governing Council member and governor at Austrian National Bank, said that as long as nothing "drastic" happens, Europe is "OK."

"At the moment, I think we're in a good place. So, there's no reason to change anything, as long as there are no changes that force us to do something, Kocher said, speaking to CNBC's Karen Tso at the IMF and World Bank annual meetings in Washington.

"And if you take the larger picture, yes, the easing cycle is close to an end or at its end, but there's no reason to pre-commit at that stage."

In a separate interview, ECB Governing Council member François Villeroy de Galhau said he recommended "agile pragmatism" when it comes to the path for interest rates, adding: "We are in a good position ... but a good position is not a fixed position."

A majority of economists polled in mid-October by Reuters said the ECB would hold its deposit rate this year, while 45 of 79 economists polled (57%) saw no change by the end of 2026.

— CNBC's Tasmin Lockwood and Leonie Kidd contributed reporting to this story.