Interest rates in the eurozone will remain unchanged. The decision taken by the European Central Bank (ECB) at its meeting this Thursday marks the first break in a cycle of hikes that has been running since July 2022 and has already seen 10 consecutive hikes totaling 450 basis points to try to tame inflation in the region.
“The Governing Council decided today to keep three key interest rates unchanged. The information received largely confirmed the previous assessment of the medium-term inflation outlook,” explained a statement following the meeting. Thus, the deposit rate is a maximum of 4%, the rate applicable to main refinancing operations is 4.5%, and the liquidity provision rate is 4.75%.
The preservation of these levels was already expected by the market, given the development of inflation and the economy. Inflation is slowing from 5.2% in August to 4.3% in September year on year (still above the ECB’s 2% target), while growth is slowing. The preliminary composite PMI for October was below expectations – at 46.5 compared to the forecast of 47.4 – and was in decline territory.
“The previous interest rate increases adopted by the Board of Governors continue to have a significant impact on financing conditions. This increasingly reduces demand, thereby helping to reduce inflation,” says the monetary authority led by Christine Lagarde. However, he warns that “inflation is expected to remain too high for too long, and domestic pressures on prices remain strong.”
In addition to raising interest rates, the ECB has also adjusted debt purchase programs to remove liquidity from the economy, which will also continue. “The Governing Council stands ready to adjust all tools at its disposal within its mandate to ensure inflation returns to the 2% target over the medium term and maintain the smooth functioning of the monetary policy transmission.” , he adds.
Council meetings, at which Portugal is represented by Bank of Portugal Governor Mário Centeno, usually take place in Frankfurt, Germany, but are sometimes scheduled in other locations. This time the decision makers are in Athens, where Lagarde is meeting a country with investment-grade quality debt for the first time in 13 years.
Author: Business magazine
Source: CM Jornal
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