Yahoo Finance ECB leaves interest rates unchanged at 4%
The European Central Bank (ECB) has left interest rates unchanged at record highs of 4% for a third consecutive meeting.
The move was widely expected by economists as it battles to bring inflation below its 2% target, reiterating its reluctance to start making cuts despite the mounting pressure to do so.
The ECB’s deposit rate, which is paid on commercial bank deposits, was last raised in September to 4% – the highest since the euro was launched in 1999.
The rate on its main refinancing operations, which provide the bulk of liquidity to the banking system, remains at 4.5%, while the marginal lending facility, which offers overnight credit to banks, is at 4.75%.
It comes as inflation had been falling consistently in the Eurozone but saw a surprise uptick to 2.9% in December, adding fuel to its relatively hawkish position.
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At a press conference on Thursday, ECB president Christine Lagarde said: "The consensus around the table of the governing council was that it was premature to discuss rate cuts.
"One other thing, which was very much a consensus around the table was that we had to continue to be data dependent."
She also said: "Inflation is expected to ease further over the course of this year as the effects of past energy shocks, supply bottlenecks and the post pandemic reopening of the economy fade and tighter monetary policy continues to weigh on demand.
"Russia’s unjustified war against Ukraine and the tragic conflict in the Middle East are key sources of geopolitical risks.This may result in firms and households becoming less confident about the future and global trade being disrupted.
"Growth could be higher if rising real incomes mean spending increases by more than anticipated or if the world economy grows more strongly than expected."
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Susannah Streeter, head of money and markets, Hargreaves Lansdown, said: "...An immobile stance through the year looks increasingly likely, given some of their recent comments.
"Even though there is has been a rapid slow down in price increases, and weakness is pervading economies, the ECB is concerned that underlying price pressures in services remain strong and the effect of the Red Sea diversions on goods has not yet played out."
Wage inflation in the eurozone is also expected to be carefully watched in the months ahead.
"With unemployment running at a record low of 6.4%, wage inflation now almost double headline inflation, labour market signals will be important," Lindsay James, investment strategist at Quilter Investors, said.
"Purchasing Manager’s Index (PMI) data yesterday showed a slight uptick in in hiring, following two months of declines, so it's not clear that wage inflation is about to take much of a tumble, particularly given workers are keen to restore the purchasing power that many saw eroded over the past two years."
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Lagarde added on Thursday that the euro area economy “is likely to have stagnated in the final quarter of 2023” and warned that incoming data “signalled weakness” in the near term.
She said there would be a pickup in growth “further ahead” and that the labour market “remained robust”.
With no unexpected surprises today the bond market remained calm, with the yield on the benchmark 10-year German bund erasing earlier gains to be little changed on the day at about 2.34%. The euro was also flat against the pound at 85p, and unmoved against the dollar at just under $1.09.
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