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. 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%.
On Thursday the ECB said: “Based on its current assessment, the governing council considers that the key ECB interest rates are at levels that, maintained for a sufficiently long duration, will make a substantial contribution to this goal.
“The governing council’s future decisions will ensure that its policy rates will be set at sufficiently restrictive levels for as long as necessary.
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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 slowdown 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.”
ECB watchers will shortly tune into president Christine Lagarde’s press conference at 1:45pm, in search for clues on when the bank might start slashing borrowing costs to continue taming inflation.
Money markets expect the ECB to begin cutting interest rates by April at the latest, while the first cut by the Bank of England (BoE) is not priced in until June.
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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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