The European Central Bank on Thursday held interest rates steady, and reiterated it would keep them high for a “sufficiently long duration” to bring inflation to target.
The central bank is holding rates for the third straight meeting, after hiking its benchmark deposit facility to 4% in September. It said that recent data had “broadly confirmed” its previous medium-term inflation outlook and that a declining trend in underlying inflation had continued.
ECB President Christine Lagarde said during a press briefing that the uptick in December inflation was expected and caused by base effects, and “does not detract from the view we have that the disinflation process is at work.”
Nonetheless, the consensus of the central bank’s Governing Council was that it was “premature to discuss rate cuts,” she said. It will continue to be data dependent rather than “fixated on any calendar,” Lagarde added.
The Governing Council’s “future decisions will ensure that its policy rates will be set at sufficiently restrictive levels for as long as necessary,” the ECB said in a statement, echoing its previous language.
The central bank is facing a sluggish euro area economy and fragile financial stability, but it is also focused on bringing inflation down to 2% from 2.9% currently. The ECB is highly concerned with possibly cutting rates too soon and undoing some of the effects of the existing tightening.
Rates pushback
Some ECB officials have spent the month pushing back against market expectations for rate reductions in the spring, stressing the need to wait for first-quarter wage data. On Thursday morning, markets were factoring in a 62% probability of an April cut, according to LSEG data.
The ECB is looking carefully at a range of data on wage growth, including from jobs site Indeed and from its own wage negotiations tracker, according to Lagarde.
The next few months will be “rich in information” on this front, she said, adding that wage growth is currently “directionally good.” The ECB’s…
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