The European Central Bank (ECB) has left its key interest rates unchanged for the first time in more than a year, signaling a steady hand as the eurozone economy faces a double challenge of recession and inflation.
The ECB's decision, announced on Thursday, was widely expected by financial markets, as the central bank had previously indicated that its tightening cycle could be over after 10 consecutive hikes in borrowing costs since September 2022.
The ECB's benchmark refinancing rate remains at 4.5%, the highest since the launch of the euro in 1999. The rate on its deposit facility, paid on commercial bank deposits, stays at 4%, while the rate on its marginal lending facility, offering overnight credit to banks, is unchanged at 4.75%.
The ECB's president, Christine Lagarde, said in a press conference that the central bank was ready to adjust its monetary policy stance if needed, but that the current level of interest rates was appropriate to ensure price stability in the medium term.
She said that the eurozone economy was facing "a complex situation" of slowing growth and rising inflation, driven by supply bottlenecks, higher energy prices and geopolitical tensions.
According to the latest data, the eurozone economy contracted by 0.3% in the third quarter of 2023, after growing by 1.6% in the previous quarter. The bloc's inflation rate hit a record high of 5.4% in September, well above the ECB's target of close to but below 2%.
Lagarde said that the ECB expected inflation to remain elevated in the coming months, but to decline gradually next year as the temporary factors fade. She also expressed confidence that the eurozone economy would recover in the fourth quarter and beyond, supported by strong domestic demand, fiscal stimulus and vaccination progress.
However, she acknowledged that there were "significant downside risks" to the outlook, such as the uncertainty related to the Covid-19 pandemic, the war in the Middle East and the potential spillovers from China's economic slowdown.
The ECB's decision to pause its rate hikes contrasts with the stance of other major central banks, such as the US Federal Reserve and the Bank of England, which have signaled their intention to raise interest rates soon to combat inflation pressures.
The ECB's next policy meeting is scheduled for December 14, when it will also update its economic projections for 2023 and 2024..
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