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European Central Bank holds rates at January meeting

Economy & Finance 0

The European Central Bank (ECB) announced on Thursday that it would maintain unchanged interest rates and continue to keep them high for an extended period to achieve its inflation target. This decision marks the third consecutive meeting in which the ECB has held rates steady, following the September increase of its deposit rate to 4%.

The central bank stated that recent data broadly supported its previous medium-term inflation outlook. While acknowledging the impact of energy prices, it also noted a persistent decline in underlying inflation.

During a press briefing, ECB President Christine Lagarde emphasized that the Governing Council agreed it was premature to discuss rate cuts. She emphasized that future decisions would be based on data rather than a fixed calendar.

The ECB's statement reiterated its commitment to maintaining policy rates at sufficiently restrictive levels for as long as necessary, highlighting the bank's focus on addressing the sluggish euro area economy, financial stability, and aiming to bring inflation down to 2% from the current 2.9%.

Some ECB officials have been pushing back against market expectations of rate cuts in the spring, emphasizing the need to wait for first-quarter wage data. Market data from LSEG indicated a 62% probability of an April rate cut.

Following the announcement, the euro saw a slight increase against the U.S. dollar and British pound, while European stocks remained mostly unchanged, reflecting investors' anticipation of limited new guidance from the ECB. European bond yields experienced a slight decline.

Richard Carter, Head of Fixed Interest Research at Quilter Cheviot, noted that the ECB's stance reiterated its reluctance to implement rate cuts despite mounting pressure to do so. Carter also highlighted the unwanted rise in inflation to 2.9% in December, which reinforced the ECB's relatively hawkish position.

Generali Investments' Head of Research, Vincent Chaigneau, observed that the ECB maintained its language regarding sufficiently restrictive monetary policy for an extended duration, which would have been viewed as dovish had it been removed. Chaigneau also mentioned that the ECB's perception of domestic inflation pressure appeared slightly diminished, likely due to the rapid decline in inflation levels.