MNI ECB WATCH: ECB Holds Rates As Inflation, Growth Slow

The European Central Bank kept its key interest rate on hold at 4% on Thursday after 10 consecutive rate rises, citing a marked drop in inflation in September, a weakening economy and tougher financial conditions, but adding that fresh tightening remained possible.

September’s drop in price pressures was broad-based, president Christine Lagarde said, with most measures of underlying inflation continuing to ease and risks to growth tilted to the downside. PMI numbers are "indicative of weakened growth" and "growth continues to be weak,” she said, though she declined to comment on whether September’s staff macroeconomic growth had already proved optimistic, ahead of December’s projections. (See MNI INTERVIEW: ECB Growth Assumptions Over-Optimistic).

Past rate increases continue to be transmitted forcefully into financing conditions, Lagarde said, with policy lags meaning demand is expected to fall further. Spikes in bond yields have also made financing conditions tighter, she added.

However, any talk of the timing or scale of future rate cuts would be “absolutely premature,” Lagarde told journalists in Athens.

“The fact that we are holding doesn't mean to say that we will never hike again," she said, noting that strong wage growth leads to improving consumer purchasing power. (See MNI SOURCES: ECB Doves Wary Of December Push For Hike)

The ECB will remain data-dependent, the president said, declaring “Now is not the time for forward guidance.”

Council members did not discuss reinvestments from the Pandemic Emergency Purchase Programme (PEPP), currently set to run until at least the end of next year, minimum reserve requirements for banks, or the rate at which excess reserves are remunerated, she said.

The ECB left its interest rates on its main refinancing operations, the marginal lending facility and the deposit facility at 4.50%, 4.75% and 4.00% respectively (see MNI ECB WATCH: ECB Set For First Rates Pause Since July 2022).