10/26/2023 – 14:36
The European Central Bank (ECB) maintained, this Thursday (26), its reference rates unchanged, after ten consecutive increases since July 2022, but ruled out any reduction due to persistent inflationary risks worsened by the war in the Middle East.
After raising official interest rates to the highest level in history, markets expected this break in restrictive monetary policy.
Euro guardians want to take some time to analyze where the eurozone economy is headed.
Since the last ECB meeting, in September, the economic situation has deteriorated, while inflation has accentuated its decline, from 5.2% in August to 4.3% in September, in annual terms.
This indicates that there is already “a very strong transmission of monetary policy, particularly in the banking sector, and that the financing of the economy is directly affected”, highlighted the president of the ECB, Christine Lagarde, adding that other effects on the economy “are yet to come.” .”
The benchmark deposit rate remains at 4.0%, its highest level since the launch of the single currency in 1999, while the refinancing rate and marginal credit facility interest rate stand at 4.50% and 4.75%, respectively.
“We must be stable and remain firm”, Lagarde stressed to the press.
– No “margin” for cuts –
The pause in monetary tightening should also allow a better assessment of the impact of geopolitical tensions related to the war between Israel and Hamas, which generate fears of an increase in the cost of oil and energy.
The ECB is “very attentive” to the economic risk posed by this conflict, added to the turmoil caused by the war in Ukraine, Lagarde said.
Energy prices have become even “less predictable” and “increased geopolitical tensions could make them rise in the short term”, he considered.
In this context, “talking about a reduction is totally premature”, according to Lagarde, although the weakness in economic activity raises fears of a contraction in the euro zone’s Gross Domestic Product in the third quarter.
“The ECB can only be sure that inflation will return to its 2% target if it keeps rates at their current restrictive level for long enough,” said Mark Wall, economist at Deutsche Bank.
However, Berenberg Bank economist Holger Schmieding believes the ECB is “settled in a flat area”. “If there are no major surprises, rates will remain at current levels for the foreseeable future,” he said.
In December, the monetary institution will be able to make a decision based on the latest inflation figures and a new set of economic projections until 2026.
Most economists do not expect a rate cut until the second half of 2024 at the earliest. “The ECB has no scope to lower rates next year” due to the ongoing risk of inflation, said Jörg Krämer, an economist at Commerzbank.
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