The European Central Bank on Thursday held interest rates steady for the second straight meeting, cementing the impression that rates have peaked in the bank's effort to crush high inflation.
Officials kept the deposit rate, one of the central bank's three key rates for the 20 countries that use the euro, at 4 percent, the highest in the institution's two-decade history. The other two rates were also unchanged.
Eurozone inflation slowed to 2.4 percent in November, the lowest level in two years, declining faster than economists expected. This is close to the European Central Bank's 2 percent inflation target, as energy prices have fallen over the past year and food inflation has slowed. But to ensure inflation returns to that target sustainably, authorities have been looking at other measures that gauge price pressures. Core inflation, which excludes food and energy prices, was 3.6 percent, down from a peak of 5.7 percent in March.
As price pressures in the bloc ease, European Central Bank policymakers are now focusing on convincing investors not to cut interest rates too soon, before they are sure the risk of a prolonged of high inflation has decreased. But economic growth has been practically stagnant for the last year, and some policymakers and analysts They remain concerned that monetary policy is too restrictive and could cause unnecessary economic damage.
In a statement accompanying the policy decision, the Governing Council gave no indication that rate cuts were close to happening. Officials said rates were at levels that, if held for “long enough,” would push inflation toward target.
“Future decisions of the Governing Council will ensure that its official interest rates are set at sufficiently restrictive levels for as long as necessary,” the statement said. The bank's president, Christine Lagarde, will later hold a news conference in Frankfurt to explain the board's decision.
Earlier on Thursday, the Bank of England kept interest rates at their highest level in 15 years and gave no signal that rates would be reduced whenever. On Wednesday, the US Federal Reserve left rates unchanged, but indicated that rates could be reduced three times next year.
The European Central Bank said high rates were having an effect on the eurozone economy. By some measures, the impact was greater than expected, such as weakening demand for loans to businesses and households. The impact is expected to grow as the economy falters, raising expectations of a rate cut.
Central bank staff said economic growth would remain “moderate” in the near term. The bloc's economy will grow 0.8 percent next year, the bank forecast, down from its previous forecast three months ago.
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