Florence (Italy) (AFP) – The European Central Bank kept interest rates unchanged again Thursday, saying inflation was in check and risks to the eurozone economy had eased while warning of continued risks from trade and geopolitical tensions. The decision, which was widely expected, marked the third straight meeting that the ECB has kept its key deposit rate steady at two percent, following an earlier string of cuts.
Inflation has settled around the central bank’s two-percent target while ECB President Christine Lagarde on Thursday noted “downside risks” to eurozone growth had eased. This was due to factors including the EU-US trade deal, progress in US-China trade talks and the Gaza ceasefire, she said after the rate decision. “From a monetary policy point of view we are in a good place,” she told a press conference in Florence, Italy, where rate-setters had gathered on one of their regular tours away from the ECB’s Frankfurt headquarters. She spoke shortly after data was released showing that third-quarter eurozone growth came in at 0.2 percent, which, while still weak by comparison with other major economies, was slightly above expectations. “I would not complain too much about growth,” she said.
Lagarde gave no hint about the central bank’s next move on rates, reiterating the ECB’s decisions would depend on the latest data. Capital Economics, however, said it believed the ECB, which is the central bank for the 20 countries that use the euro, would hold off changing rates any time soon. “There is little appetite on the governing council to change interest rates in the near term,” Jack Allen-Reynolds, the group’s deputy chief eurozone economist said. 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, there was little immediate pressure for a rate cut. The eurozone economy still 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. “The outlook for inflation continues to be more uncertain than usual,” Lagarde said, stressing that the growth and inflation outlook were highly dependent on the outcome of trade disputes and geopolitical tensions. “We are in a period of still great uncertainty. Many of those risks result from policies and implementation of policies,” Lagarde said, although she welcomed signs that US President Donald Trump and Chinese leader Xi Jinping had sought to calm trade tensions in their talks in South Korea.
As for Chinese export restrictions on rare earths disrupting supply chains and potentially driving up inflation, Lagarde said the ECB was in “wait and see mode.” “We will continue to be attentive to the risk,” she said. “We are still to understand exactly what the outcome of the discussions between the US authorities and the Chinese authorities will deliver.”
There are signs that the ECB governing council is divided over the next move on rates. Some have called for another rate cut as soon as the central bank’s next meeting in December, when policymakers will be armed with updated inflation and growth forecasts to guide them. Lagarde conceded that there are “different positions and different views and different analyses.” “But I’m happy to say that on the occasion of this meeting in Florence there was absolute unanimity on the part of all members.”
© 2024 AFP
