The European Central Bank keeps interest rates unchanged, saying domestic price pressures are high | Wilnesh News

Following its landmark rate cut in June, the European Central Bank voted unanimously on Thursday to keep interest rates unchanged and described the possibility of a rate cut in September as “open”.

The ECB’s Governing Council said in a statement that “monetary policy has kept financing conditions restrictive. At the same time, domestic price pressures remain high and service sector inflation is rising, and overall inflation is likely to remain within the target for a long time next year.” superior.

It added that recent data generally supported its medium-term inflation outlook towards 2%.

The decision to keep the ECB’s key interest rate at 3.75% was widely expected amid ongoing concerns about inflationary pressures, particularly from the labor market.

The overall inflation rate in the Eurozone fell to 2.5% in June from the previous 2.6%, but the core inflation rate (excluding volatile components such as energy and food) was higher than consensus expectations and stabilized at 2.9%.

Analysts expect the central bank to wait for more data on employment, economic growth and productivity before easing monetary policy further.

European Central Bank President Cristina said: “Wages are still rising at a relatively high rate, making up for the high inflation in the past period. Rising nominal wages and weak productivity have exacerbated unique labor cost growth, although there was a decline in the first quarter of this year. Slowed down.

Lagarde said the central bank expects inflation levels to fluctuate throughout the rest of the year, but will fall overall in the second half of the year due to weak labor costs, the impact of monetary policy and the weakening impact of price shocks.

The European Central Bank cited the inflation outlook, underlying inflation dynamics and the strength of monetary policy transmission as reasons for cutting interest rates in June, its first rate cut since 2019.

In a statement released on Thursday, the Governing Council said it would continue to monitor these areas and “will not pre-commit to a specific interest rate path.”

However, market pricing suggests that there are firm expectations for two more 25 basis point interest rate cuts this year in September and December, with a pause during the central bank’s October meeting.

Lagarde confirmed at a news conference that the July decision was unanimous, a change from June, when Austrian central bank president Robert Holzmann was the only dissenter. Voted in favor of keeping interest rates on hold again rather than cutting them.

“Equally unanimously, we decided to rely on the data and make decisions meeting by meeting,” she said in response to CNBC’s Annette Weisbach, adding that the decision in September was “open-ended.”

Expectations of keeping interest rates on hold in July meant European markets were little changed following the decision, with the euro continuing to edge lower against the dollar and higher against the pound. Stocks across the region were broadly higher.

Kiran Ganesh, chief investment officer, said: “The ECB remains very open to a rate cut in September, which we think is very likely… We think now is the time to move cash and lock in current rates before they fall.

“In terms of the euro, the euro and the dollar are likely to be on very similar interest rate paths from here, so we recommend looking at currencies that may be nearing the end of their rate cutting cycle, such as Switzerland, where we only expect further rate cuts,” he added.

Although the European Central Bank started cutting interest rates before the Federal Reserve, investors now generally expect the Fed to start cutting interest rates in September and cut interest rates three times before January 2025.

Switzerland, Sweden and Canada have all cut interest rates this year, but British inflation data this week were sticky, reducing market bets on an interest rate cut by the Bank of England in August. The pound strengthened on Wednesday.