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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