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The European Central Bank has held interest rates, bringing an end to its unprecedented streak of 10 consecutive increases in borrowing costs amid rising concerns over eurozone growth.
The decision, announced after ECB rate-setters met in Athens, was expected by analysts in the wake of eurozone inflation more than halving from its peak and the economy showing signs of weakening.
The benchmark deposit rate stayed at 4 per cent — four-and-a-half percentage points above its all-time low of minus 0.5 per cent.
The ECB’s pause comes ahead of decisions by the US Federal Reserve and the Bank of England next week in which they are also expected to hold rates steady as inflation eases.
The question now is how long to keep rates elevated to get price growth down to central banks’ 2 per cent targets.
ECB president Christine Lagarde told a press conference she would not rule out another rate increase, adding that it was “totally premature” to discuss a potential cut.
But analysts said Lagarde put a dovish slant on the decision, stressing how much its earlier rate rises were already squeezing activity.
The ECB president said growth was “likely to remain weak over the remainder of the year” as the impact of higher interest rates was “broadening”.
Asked about the risk of the Israel-Hamas war sparking another spike in oil prices, Lagarde said the ECB was being “very attentive” to the fallout from tensions in the Middle East.
But she added that the eurozone was “a completely different economy today” compared with when energy prices surged last year. This time around, they were less likely to seep through into broader price pressures.
“She could have stressed the upside risks to inflation from the Middle East situation a bit more, especially given we have just had a big energy shock that they massively underestimated,” said Dirk Schumacher, economist at French bank Natixis. “I found her quite dovish.”
In the eurozone, concerns over inflation are coming up against mounting worries about the weakness of the economy. Analysts expect GDP figures for the third quarter, out next week, to show a contraction in output.
Inflation has dropped from a peak of 10.6 per cent a year ago to 4.3 per cent in September. Some economists think they could fall close to 3 per cent when October data is published on Tuesday.
The ECB said keeping rates at their current level “for a sufficiently long duration” would make “a substantial contribution” to achieving its inflation target. It added that “rates will be set at sufficiently restrictive levels for as long as necessary”.
“We think the bar for another hike is high,” said Ann-Katrin Petersen, senior investment strategist at the BlackRock Investment Institute. “But the bar to start cutting rates is even higher.”
Financial markets largely brushed off the pause, with stock markets stuck in negative territory and government bond yields slightly lower.
The region-wide Stoxx Europe 600 remained 0.6 per cent lower in early afternoon trade. The yield on 10-year German Bunds fell 0.04 percentage points to 2.84 per cent, while that on Italy’s 10-year bond was down 0.06 percentage points at 4.85 per cent. The euro was down 0.3 per cent against the dollar.
The unanimous decision to pause rate rises was cheered in Rome. “Finally the ECB has decided not to continue raising interest rates. It’s good news for the economy,” Antonio Tajani, Italy’s foreign minister, wrote on X, the social media platform.
The ECB had been expected to begin discussions on bringing forward the end of reinvestments in its €1.7tn portfolio of pandemic-era bond purchases and to reduce the amount of interest it pays to commercial banks on their deposits. But Lagarde said neither subject had been discussed at this week’s meeting.
Additional reporting by George Steer and Amy Kazmin
