European Central Bank keeps rates on hold as inflation jumps
European Union flags fly as European Central Bank (ECB) President Christine Lagarde speaks to reporters after the Governing Council monetary policy meeting in Frankfurt, Germany, on September 12, 2024.
Jana Rodenbusch | Reuters
The European Central Bank left interest rates unchanged at its meeting in April, despite rising inflation in the euro zone since the start of the war in Iran.
The ECB’s governing council opted to keep the benchmark deposit rate at 2% on Thursday.
In its statement, the bank stated that its previous assessment of the inflation outlook remained largely unchanged, but that “upside risks to inflation and downside risks to growth have intensified.”
It was stated that the Governing Council remains determined to determine the monetary policy that will ensure inflation stabilizes at the 2 percent target in the medium term.
Acknowledging that the war in the Middle East has caused a sharp increase in energy prices, increased inflation and suppressed economic sentiment, the ECB noted that “the effects of the war on medium-term inflation and economic activity will depend on the intensity and duration of the energy price shock and the size of its indirect and second-round effects.”
“The longer the war lasts and the longer energy prices remain high, the stronger the possible impact on overall inflation and the economy,” the bank said. he emphasized.
He said he would monitor the situation closely and take a data-driven, meeting-by-meeting approach when determining his monetary policy stance. He emphasized that policymakers will not make a pre-commitment to a specific rate path.
The euro traded at $1.17 against the dollar, up almost 0.2% following the move. Eurozone bond yields fell slightly; The interest rate on the 10-year German bond fell 3 basis points to 3.0580%, while the French equivalent fell 4 basis points to 3.7135%.
The ECB’s decision comes after breaking data released on Thursday showed inflation in the euro zone jumped to 3% in April, largely due to a rise in energy costs in the region.
European Central Bank President Christine Lagarde said at the bank’s last meeting a month ago that policymakers were ready to raise interest rates even if the expected rise in euro zone inflation turned out to be temporary.
Economists say the bank’s June meeting will be the one to watch and a 25 basis point increase could take the key interest rate to 2.25%.
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