European Central Bank President Christine Lagarde said she'll step down on Feb. 7, 2027, roughly nine months before her eight-year term ends.
Hours later, the Governing Council left its deposit rate at 2.5%, holding after two hikes this year. The main refinancing rate stayed at 2.65% and the marginal lending facility at 2.90%.
Eurozone inflation hit 3.8% in September, up from 3.2% in August and close to double the 2% target. The central bank blamed energy costs tied to the Iran war, warning the shock is likely to drive up inflation and lower growth.
ECB Holds Rates While Eurozone Inflation Runs Near Double Target
Key ECB policy rates and French bond market levels, %, as of Oct. 29, 2026
| Metric | Value | As of |
|---|---|---|
| ECB deposit rate | 2.50% | Oct. 29, 2026 |
| ECB main refinancing rate | 2.65% | Oct. 29, 2026 |
| ECB marginal lending facility | 2.90% | Oct. 29, 2026 |
| Eurozone inflation | 3.80% | September 2026 |
| French 10-year yield | 5.00% | Oct. 29, 2026 |
| French-German 10-year spread | 155 bps | Oct. 29, 2026 |
Source: Euronews, Reuters
The exit clock is set by French politics
Lagarde's term was scheduled to run to the end of October 2027. Leaving in February gives current European Union leaders time to pick a successor before France's April presidential election.
Polls show far-right candidate Marine Le Pen is favourite to win that vote, per Reuters. A successor named now is chosen while Emmanuel Macron and Germany's Friedrich Merz still control the appointment.
Speculation about an early departure had built for months, with the World Economic Forum seen as her likely next stop.
Former Dutch central bank governor Klaas Knot and former Spanish governor Pablo Hernández de Cos are the frontrunners. Two more seats on the six-member Executive Board open in the first half of next year, including chief economist Philip Lane's.
France's bond market is doing the tightening
French 10-year bond yields topped 5% last week for the first time since 2002 and remained close to that level on Thursday. Meanwhile, the yield spread over German bonds widened to around 155 basis points, its highest since 2011.
Dutch bank ING estimated the rise in yields since September had done the work of a 25 basis point hike in Germany and closer to 50 basis points in France. The bond market, it said in a note, has taken over the ECB's job.
Moody's kept France's Aa3 rating unchanged last Friday with a negative outlook, while a divided parliament struggles to pass next year's budget. Lagarde has pushed back on rescue talk, saying in Bangkok this month that the first solution lies at home in France.
The ECB repeated that its never-used Transmission Protection Instrument, a tool for buying bonds of countries facing unjustified yield spikes, remains available. Its bond portfolios keep shrinking as maturing debt goes unreinvested.
The near-term policy path likely holds. A president is one voice on the council and rarely overrides consensus, Ebury's global head of market strategy Matthew Ryan noted.
"A drawn-out succession could inject volatility into markets at an already fragile moment."
Matthew Ryan, Ebury
Knot is the hawk of the pair and Hernández de Cos the more dovish, with more emphasis on growth and bond-market stability. Whoever lands the job inherits inflation near 4% and a French yield curve already priced for trouble.
