The ECB left interest rates unchanged

The European Central Bank (ECB) announced this Thursday that it left interest rates unchanged, as at the last Governing Council meeting.

This is the second pause in a row after 10 interest rate hikes as inflation shows signs of slowing.

The deposit rate remains at 4%, the highest level recorded since the introduction of the single currency in 1999, while the main refinancing interest rate remains at 4.5% and the rate applicable to the liquidity facility. remains at 4.75%.

“Previous interest rate hikes continue to weigh heavily on the economy. More restrictive financing conditions are holding back demand, which helps lower inflation,” the institution, led by Christine Lagarde, said in a statement.

The ECB forecasts that economic growth will remain weak in the short term, but believes that “although inflation has fallen in recent months, it is likely to rise temporarily again in the short term.”

The Governing Council reiterates its commitment to returning inflation to the 2% target and believes that key interest rates are at levels that, if maintained for a sufficiently long period, “will make a significant contribution to achieving this goal.”

“Future decisions of the Board of Governors will ensure that policy rates are set at sufficiently restrictive levels for as long as necessary,” the statement said.

While the market expects the ECB to continue cutting interest rates next year, the Governing Council stresses that it will continue to “follow a data-driven approach in determining the appropriate level and duration of restrictions.”

“In particular, interest rate decisions will be based on an assessment of the inflation outlook in light of newly available economic and financial data, underlying inflation dynamics and the strength of monetary policy,” he says.

The ECB’s key interest rates are the main instrument for determining the course of monetary policy.

The ECB also decided in the first half of 2024 to continue full reinvestment of principal payments on maturing bonds purchased under the Pandemic Emergency Purchase Program (PEPP).

It intends to reduce the PEPP portfolio by an average of 7.5 billion euros per month in the second half of next year and stop reinvesting under PEPP at the end of 2024.