The European Central Bank kept interest rates on hold for a third straight meeting and stuck with wording that suggests cuts may still be some way off.
The deposit rate was left at a record-high 4% — as predicted by all economists surveyed by Bloomberg. The ECB repeated that maintaining this level of borrowing costs for sufficiently long will make a “substantial contribution” to taming consumer prices.
“The incoming information has broadly confirmed its previous assessment of the medium-term inflation outlook,” the Governing Council said Thursday in a statement. “Tight financing conditions are dampening demand, and this is helping to push down inflation.”
All eyes will now be on President Christine Lagarde’s news conference, where she’s expected to push back once again against what the ECB deems overly dovish market bets on policy easing.
Investors are still leaning toward a first reduction in April, while officials including Lagarde herself have indicated that a summer move is more likely.
She’ll speak at 2.45 pm in Frankfurt. Markets were little-changed following the ECB’s policy announcement.
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Recent weeks have seen pleas from the likes of the International Monetary Fund that central bankers around the world don’t loosen monetary policy too hastily, before inflation has been overcome.
With price growth only expected to return to the 2% target in 2025, that’s a mistake ECB officials are wary of — particularly as attacks by Houthi rebels in the Red Sea feed concerns that supply chains still healing from the pandemic face turmoil once again.
For reassurance that inflation is on a path back to the goal, policymakers want to see the results of Europe’s first-quarter wage deals, as well as get a sense of how extensively firms are passing higher costs on to customers.
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This week brought a reminder that upside inflation risks persist as polls of purchasing managers showed selling prices for goods and services jumped the most since May. That came even as the surveys indicated further contraction in the euro-area economy.
Fourth-quarter data are due next week and may show a first recession since Covid struck. Germany, the region’s No. 1 economy, has narrowly avoided such a fate, but saw output shrink by 0.3% across 2023 as a whole.
The outlook still represents a so-called soft landing for Europe, and with markets sanguine on risks to national finances in the bloc’s 20 members the ECB also confirmed Thursday that it plans to stop some reinvestments under its pandemic bond portfolio from July, before ceasing all rollovers in December.
