ECB keeps key rates steady at record 4%; lowers 2024 inflation, growth forecasts

  • The ECB raised interest rates to a record high earlier this year but unexpectedly benign inflation data over the past few months has ruled out further policy tightening, shifting the debate to how fast it will reverse course.

Livemint (with inputs from Reuters)
First Published14 Dec 2023, 08:38 PM IST
The ECB said full reinvestment under the PEPP will end on June 30
The ECB said full reinvestment under the PEPP will end on June 30

The European Central Bank (ECB) has left the key interest rates unchanged at a record-high level of 4 per cent for the second straight meeting and signaled an early end to its last remaining bond purchase scheme, which helped support the euro across the 20-nation euro zone.

The ECB raised interest rates to a record high earlier this year but unexpectedly benign inflation data over the past few months has ruled out further policy tightening, shifting the debate to how fast it will reverse course.

ECB President Christine Lagarde highlighted instead that inflation would soon rebound and price pressures remain strong. That was in stark contrast to the more dovish tone taken by her US Federal Reserve counterpart Jerome Powell on Wednesday.

"We don't think that it's time to lower our guard," Lagarde told a news conference. “There is still work to be done ... that can very much take the form of holding (rates).” Lagarde, who described herself as "in COVID recovery mode" and spoke more quietly than usual, said policymakers "did not discuss rate cuts 

Lagarde also stressed that future decisions will ensure that rates “will be set at sufficiently restrictive levels for as long as necessary.” In a smaller policy change, the ECB unveiled plans to phase out its last surviving bond-buying scheme - a legacy of the COVID-19 pandemic.

Also Read: US Fed Policy: FOMC keeps key rates steady at 22-year high-mark in last verdict of 2023, signals end of rate hikes

ECB economic projections

The ECB's updated economic projections pointed to lower inflation and growth, particularly for next year. ECB staff expect headline inflation to average 5.4 per cent in 2023, 2.7 per cent in 2024, 2.1 per cent in 2025 and 1.9 per cent in 2026, closing in on the bank's 2 per cent target.

Lagarde repeatedly pointed out however that those forecasts were based on market prices before traders ramped up bets on ECB rate cuts earlier this month. This came on the back of a lower-than-expected inflation reading for November and comments from ECB board member Isabel Schnabel that were perceived as dovish.

A sharp fall in bond yields since then has eased borrowing costs, therefore undoing the ECB's tightening and potentially helping fuel inflation. Bonds were given a further boost on Wednesday when the Fed, the world's most influential central bank, signaled that lower borrowing costs would come next year, with policymakers indicating up to three cuts.

The rally in bond markets has had a silver lining for the ECB, too, however, as it allowed it to wind down its Pandemic Emergency Purchase Programme, unveiled at the onset of COVID to stabilise markets and fight off the threat of deflation.

This was due to run in full until the end of next year but, with no stress in markets, the ECB said it would replace maturing bonds only through June and then phase out reinvestments in the second half of the year.

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.MoreLess
First Published:14 Dec 2023, 08:38 PM IST
HomeEconomyECB keeps key rates steady at record 4%; lowers 2024 inflation, growth forecasts

Most Active Stocks

Bharat Electronics

313.00
10:59 AM | 18 JUL 2024
-13.35 (-4.09%)

Zee Entertainment Enterprises

143.20
10:59 AM | 18 JUL 2024
-12.25 (-7.88%)

Oil & Natural Gas Corporation

327.80
10:59 AM | 18 JUL 2024
5.4 (1.67%)

Tata Steel

165.05
10:59 AM | 18 JUL 2024
-2 (-1.2%)
More Active Stocks

Market Snapshot

  • Top Gainers
  • Top Losers
  • 52 Week High

Tata Teleservices Maharashtra

86.90
10:46 AM | 18 JUL 2024
5.57 (6.85%)

IDBI Bank

93.32
10:46 AM | 18 JUL 2024
5.4 (6.14%)

India Cements

341.75
10:46 AM | 18 JUL 2024
18.7 (5.79%)

Emami

808.40
10:46 AM | 18 JUL 2024
35.3 (4.57%)
More from Top Gainers

Recommended For You

    More Recommendations

    Gold Prices

    • 24K
    • 22K
    Bangalore
    75,099.00-147.00
    Chennai
    74,659.00-440.00
    Delhi
    74,512.00-294.00
    Kolkata
    75,539.0073.00

    Fuel Price

    • Petrol
    • Diesel
    Bangalore
    102.86/L0.00
    Chennai
    100.76/L0.00
    Kolkata
    104.95/L0.00
    New Delhi
    94.72/L0.00
    OPEN IN APP
    HomeMarketsPremiumInstant LoanMint Shorts