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LAST UPDATE | 14 Dec 2023
THE EUROPEAN CENTRAL Bank has announced it is keeping interest rates unchanged as it predicts inflation will pick up again temporarily in the near term.
“The Governing Council today decided to keep the three key ECB interest rates unchanged. While inflation has dropped in recent months, it is likely to pick up again temporarily in the near term,” the central bank said in a statement issued this afternoon.
The interest rates on the main refinancing operations, the marginal lending facility and the deposit facility are to remain unchanged at 4.50%, 4.75% and 4.00% respectively.
“The past interest rate increases continue to be transmitted forcefully to the economy. Tighter financing conditions are dampening demand, and this is helping to push down inflation,” the statement said.
The ECB’s Governing Council said it is “determined to ensure that inflation returns to its 2% medium-term target in a timely manner”.
“Based on its current assessment, the Governing Council considers that the key ECB interest rates are at levels that, maintained for a sufficiently long duration, will make a substantial contribution to this goal,” the statement said.
The ECB’s president Christine Lagarde is set to give a press conference on the decision shortly.
Speaking in Brussels earlier today, Taoiseach Leo Varadkar said he expects to see “interest rates fall next year”, something he said would be “very welcome for borrowers and mortgage holders in particular”.
He also noted that the Irish economy is “slowing down” and that this is “very evident”.
However, he added that the ESRI report showing that the Irish economy is continuing to grow despite a contraction in Gross Domestic Product (GDP) this year “tells a very important story”.
“In my view that confirms that the government has made the right policy decisions,” said Varadkar.
“A lot of people, six months ago or a year ago, were talking about the economy overheating. Nobody’s talking about that now.
“Very recently, some people were talking about the government fuelling inflation.
“In fact, inflation is coming down and it’s going to be between two and three percent next year, in my view.”
Elsewhere, the Swiss National Bank (SNB) kicked off today’s central bank announcements by keeping its key interest rate at 1.75%.
SNB policymakers acknowledged that inflationary pressures had eased but warned that rising electricity prices and rents could yet trigger a renewed inflation jump.
Norway’s Norges Bank bucked the trend by raising its main interest rate by a quarter percentage point to 4.5%, warning that inflation remained too high.
Yesterday in Washington, the US Federal Reserve held its key lending rate at a 22-year high for a third straight meeting, following a recent flurry of positive economic news.
Policymakers also indicated that they expect to make three rate cuts next year, triggering a stock market rally as investors celebrated the prospect of a faster easing cycle.
“The Fed has delivered an early Christmas present to markets,” said Kellie Wood, at asset management company Schroders.
Later today, the Bank of England is expected to hold its position for a third time and keep its main interest rate at 5.25%. UK inflation slowed sharply to 4.6% in October but remains the highest among the G7 nations.
With reporting from AFP
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Interest rates have reached a level that makes borrowing to grow employment giving investment impossible.
@thomas molloy: Interest rates have been much higher in the past. At one point in the 90s, rates were in the mid-teens.
The low interest rates we have experienced over the past decade or so are an anomaly, in historical terms.
They will claim that they have achieved their objective in that inflation has reduced. They cannot see that their hiking of rates contributed to the inflation rate rise.
@Pato: ehhhhhhhh no.
@Pato: Explain.because everyone else will disagree with you.
@Pato: Please do explain
@Donal McCarthy: I think Pato is largely correct.
Inflation can be caused by two things:
1) A shortage of some goods, or service
2) A surfeit of money in an economy
As I understand it, the inflation we experienced – and are still experiencing – was due to (a contrived) shortage. A shortage in energy, driving up fuel and electricity prices, which then fed into everything else. This was preceded by another shortage caused by the Corona virus pandemic shutting down lots of manufacturing, particularly in China – the so-called supply chain shortages.
The way to address inflation caused by too much money in the economy is to remove some of that money. Increasing interest rates is one way to do that.
However, increasing interest rates will not bring down the cost of electricity.
Or petrol.
When the (major) cause of our inflation is the profiteering of energy companies, increasing interest rates just puts more cost onto all of us, including businesses. Which can only recoup those additional costs by increasing their prices.
Which adds to inflation.
The best way to address such profiteering by the oil (and gas, and associated energy) companies would have been a windfall tax.
@ItWasLikeThatWhenIGotHere: pato stated that the interest rate rises caused the inflation which was incorrect. yes energy prices and supply chain issues were minor contributory factors, but the primary factor was 10 years of free money, which was then acclerated into turbo over drive during covid when physical money supply in the US and EU increased by near 50%. There were 50% more dollars/euros in peoples back accounts after covid then before covid. I do not believe we will see near zero interest rates for some time. I believe it will remain between 2-3% for the very reason that this new money had to be extracted out of the economy and it needs to stay there otherwise it will result in another cycle of inflation.
@Niall English: No, Pato did not say that.
Pato said that raising interest rates “contributed to the inflation rate rise.”
Which is correct, in my view.
Bitcoin fixes Central Bank Ponzi Schemes
@Snacktoshi Nachomoto: how?
@Snacktoshi Nachomoto: anyone who buys crypto currency is a fool and typically didn’t study business subjects in school. The government and central banks decide what Currency we use whether that may involve digital euro. Profiting from digital euro is foolish.
@Snacktoshi Nachomoto: I’m afraid you are not as well informed as you may think. Bitcoin is the real ponzi scheme.
@Snacktoshi Nachomoto: bitcoin is the currency of crooks
@Liam Clifden: but maybe the worst performing in 2022, so what’s your point??
@Liam Clifden: Actually that’s a lie, xrp has preformed better than bitcoin and that’s with a court case hanging over it head, xrp is up over 50 percent from its bottom this year, bitcoin isn’t up over 50 percent from its bottom this year,
@Liam Clifden: bitcoin has zero intrinsic value. people like yourself are pursuant to the greater f00l theory. in order to profit, you need to find a bigger f00l to buy it at a higher price.
Control the money control the people
Great news. And well done central bankers. A solid victory over the ever populist economists.
@Itwaslikethatwhenigothere:
I don’t think you’re correct in relation to a windfall tax. Windfall taxes do nothing to protect against profiteering, they simply allow the state to increase their tax take.
Consider this. Company A usually makes profits of €100m and pays 12.5% tax on this. So they net 87.5m
Now they increase their prices and their income doubles to €200m – the government introduce a windfall tax of 20% on profits in excess of 100m so they now net 87.5m on the first 100m and 80m on the second 100m – net profits have increased to 167.5m – why would that entice them to reduce prices?
Even if the windfall tax was 50% – there is still no incentive to reduce as 50% of something is better than 100% of nothing. The only winner here is the exchequer.
If you want to limit profiteering then a price cap is the only way it could work. Windfall taxes are ineffectual.
@Liam Clifden: Bernie Madoffs Ponzi scheme was running for 17 years…
Happy Christmas from the European Central Bank
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