ECB extends interest rate pause
Despite falling inflation and economic concerns, the European Central Bank is leaving key interest rates unchanged. The financial market assumes that the ECB will cut interest rates in the spring.
The European Central Bank (ECB) is leaving interest rates in the eurozone unchanged for the second time in a row. The key interest rate at which banks can obtain fresh money from the central bank remains at 4.5 percent following a decision by the ECB Governing Council, as announced by the monetary authorities in Frankfurt.
Inflation in the single currency area has recently weakened surprisingly significantly. At the same time, concerns about the economy are growing. The US Federal Reserve (Fed) had previously left the key interest rate in the USA unchanged for the third time in a row and held out the prospect of interest rate cuts in the coming year.
Many economists expect that the euro currency guardians will also cut interest rates in the coming year. However, ECB President Christine Lagarde recently warned against declaring victory over inflation just yet. Rather, she said, it is necessary to remain vigilant until the inflation rate returns to the medium-term target of two percent. Bundesbank President Joachim Nagel had warned: "It would be premature to lower key interest rates soon or to speculate about such steps."
Inflation in the eurozone weakened significantly in November. According to Eurostat, the statistics office, consumer prices were 2.4 percent higher than in the same month last year, compared to 2.9 percent in October. Last year, the inflation rate was still in double figures at times as a result of the Russian war of aggression against Ukraine. In the medium term, the ECB is aiming for stable prices with an inflation rate of 2.0% for the common currency area with its 20 member states.
Series of interest rate hikes in the fight against high inflation
After an unprecedented series of ten interest rate hikes in a row in the fight against high inflation, the monetary authorities stopped tightening the interest rate screw for the first time in October. Higher interest rates make loans more expensive, which can curb demand and counteract high inflation rates. At the same time, more expensive loans are a burden on the economy because credit-financed investments become more expensive.
The economy in the eurozone is weakening. According to Eurostat, economic output shrank by 0.1% in the third quarter compared to the previous quarter. In the second quarter, gross domestic product (GDP) grew by 0.2% after stagnating at the beginning of the year. According to the German government and economists, the German economy will continue to contract slightly in 2023 as a whole. The deposit rate that banks receive for parked money remains at 4.0% following the ECB Governing Council's latest decision. This is the highest level since the monetary union was established in 1999.
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The ECB Governing Council, headed by President Christine Lagarde, chose to maintain the ezb's key interest rate at 4.5% in Frankfurt, despite the recent decrease in inflation and economic uncertainties. Analysts in the financial markets anticipate that the ECB might reduce interest rates in the spring, following the US Federal Reserve's decision to keep its rate unchanged for the third consecutive time and suggesting potential future cuts.
Source: www.ntv.de
