Inflation brought to target amid the squeeze of power politics

2025 was marked by an extraordinary level of uncertainty. Ugly power politics broke loose, the global economy fragmented into blocs and international cooperation withered to the point of drawing its last breath. After President Donald Trump had taken office in January, the United States began to burden the global economy with a series of tariff threats.

The independence of the US central bank was placed under severe strain. President Trump exerted intense pressure on the Federal Reserve to cut interest rates and showed himself ready to have central bank leaders replaced, though on grounds that do not stand up to scrutiny. The Fed and its Chair, Jerome H. Powell, demonstrated that they will not buckle in the face of this extraordinary political pressure.

In Europe, the independence of the European Central Bank (ECB) in determining monetary policy is anchored in the EU Treaties, where it is protected by various institutional safeguards. It is no coincidence that inflation in the euro area stabilised at its 2% target during the year – this is certainly connected with the central bank’s independent decision-making.

At the meetings of the ECB’s Governing Council, we reduced the key interest rates four times during the first half of 2025. Following the rate cut in June, the most closely followed of the ECB’s key rates, the deposit rate, was held at 2% for the remainder of the year.

The aim of these interest rate decisions is always to ensure price stability. The unpredictable twists and turns in geopolitics and the global economy mean that vigilance will continue to be needed as we go forward.

In July, we published the Eurosystem’s extensive assessment of monetary policy strategy. This assessed the foundations of our decision-making. The strategy assessment concluded that there were no grounds for changing the inflation target. We therefore reaffirmed our commitment to a symmetric 2% inflation target in the medium term. We also sharpened our ability to respond effectively if inflation were to appear to be diverging from this for a longer period – in whichever direction – and we bolstered our preparedness for a more uncertain environment.

Growth in the euro area economy in 2025 proved to be persistent and resilient despite the shadow cast by the trade war and uncertainty. In June we forecast that economic growth in Finland would gradually pick up, while also recognising that the trade war would slow the recovery. At the end of the year, there were improved grounds for positive economic sentiment. Although global tensions increased the financial stability risks for Finland too, the country’s financial system remained stable.

Finland’s public finances remained under pressure. In this too, the year nevertheless also brought some good news when the parliamentary groups reported in October that they had reached a broad parliamentary consensus about a fiscal framework for debt sustainability in Finland.

As 2025 drew to a close, the state of the world was probably exercising the minds of many of us to a greater extent than it was when the year started. As a central bank our role is to bring stability to the economy even in difficult circumstances.

Our daily work focuses on maintaining price stability and financial stability. We also ensure that there are safe and effective ways of making payments, whether using cash or other methods. We moved closer towards an instant payments solution in Finland, and within the Eurosystem there was progress with the preparatory work for a digital euro. A key objective of a digital euro is to increase Europe’s self-sufficiency in electronic retail payments, which are currently dominated by American card companies.

We identified and assessed, in the financial system, the latest and other risks associated with the growing popularity of crypto-assets and stablecoins. In the Eurosystem we put together recommendations for simplifying banking regulation without jeopardising stability. We also recognised that to strengthen the international position of the euro in terms of structural factors will require major decisions and especially a deepening of integration in the financial markets.

May I warmly thank our competent and professional staff at the Bank of Finland for a year in which they have demonstrated strong commitment to our goals, and our stakeholders for their very fruitful cooperation during the year. Gratitude must also be extended to everyone across the country for demonstrating through their actions and attitudes that our nation can weather storms and turmoil, and daily life can go on regardless of these.