Florence (Italy) (AFP) – The European Central Bank kept interest rates unchanged Thursday but warned of an “uncertain” economic outlook amid trade disputes and geopolitical tensions. Following a year-long series of cuts, the ECB has kept its key deposit rate steady at two percent since July. Inflation has settled around the central bank’s two-percent target, and Europe has weathered US President Donald Trump’s tariff onslaught better than initially feared.
“Inflation remains close to the two-percent medium-term target, and the Governing Council’s assessment of the inflation outlook is broadly unchanged,” the ECB said in a statement. Officials did little before the meeting to signal that a change in rates was on the cards. Jose Luis Escriva, Spain’s central bank chief and a member of the ECB’s rate-setting governing council, told El Diario newspaper in a weekend interview that the “current level of interest rates is appropriate.”
ECB officials gathered in Florence, Italy, on one of their regular tours away from the central bank’s Frankfurt headquarters, and all eyes will now be on President Christine Lagarde’s press conference from 1345 GMT and any hints on the future trajectory of rates. In contrast to the ECB, the US Federal Reserve has started reducing borrowing costs again, and on Wednesday cut rates for its second straight meeting – by a quarter point – as concerns grow about the cooling labour market.
With the long-struggling eurozone economy on a better footing than some had feared – the ECB raised its eurozone growth forecast for this year at its last meeting in September – there was little immediate pressure for a rate cut. However, the central bank for the 20 countries that use the euro faces headwinds, from the French political crisis that has pushed up borrowing costs in the eurozone’s second-biggest economy to the risk of a further flare-up in trade tensions and signs of slowing wage growth.
Such concerns are firing debate about whether the ECB may need to make more cuts later. Rate-setters appear “split with regard to the balance of risks to inflation and, therefore, on the need for an ‘insurance’ cut over the coming few months,” UniCredit analysts said this week. Lithuanian governing council member Gediminas Simkus weighed in on the debate in September, calling for a cut at the ECB’s next meeting in December.
“From a risk-management perspective, it’s better to cut than not,” he said in an interview with Bloomberg, warning of a strong euro and slowing wage growth dragging inflation down. Andrew Kenningham, an economist at Capital Economics, told AFP he expected the ECB to cut rates further in 2026 as inflation and wage growth cool. “There are now very few reasons to fear a resurgence of inflation – the economy remains so weak, the labour market is loosening,” he said.
© 2024 AFP
