ECB keeps key interest rates steady at record 4% for third consecutive meeting

 – Gudstory

ECB keeps key interest rates steady at record 4% for third consecutive meeting – Gudstory

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frankfurt, Germany : The European Central Bank kept its key interest rate at a record-high 4% on Thursday, keeping loans expensive for businesses and consumers as it tries to ensure inflation remains firmly under control before cutting borrowing costs. Under control – a move is expected later this year.

The question is how much delay will there be this year. Financial markets are expecting a rate cut as early as April, while ECB President Christine Lagarde has indicated it is likely to happen this summer.

Analysts are expected to highlight at a news conference later on Thursday that the bank needs to see more evidence that painful inflation – which has made everything from groceries to energy more expensive – is being eased. Has been done.

Lagarde faces financial markets that are expecting a cut as early as April, and stock prices have risen and fallen based on expectations of a boost from lower rates.

He cautioned that the bank will take decisions based on the latest data about the health of the economy rather than making long-term promises.

The ECB kept its benchmark rate steady at 4%, a path also taken by Norway’s central bank on Thursday. The same day, the central bank in Turkey, which is suffering from out-of-control inflation of nearly 65%, raised its key rate to 45%, in what is expected to be the last increase for some time.

Stock investors saw their holdings, such as those in US retirement accounts, rise in the last weeks of 2023 as the US Federal Reserve and ECB signaled that the rapid series of rate hikes was ending. Fed Chairman Jerome Powell said officials discussed the possibility of a rate cut at the bank’s December meeting and the US central bank has signaled it will cut its key interest rate three times this year.

The S&P 500, a broad measure of U.S. large-company stocks, hit a record high this week, and European indexes also rose. The question facing the global stock rally is whether the gains can continue.

Rate cuts make risky investments like stocks more attractive than safer bets like money market accounts and certificates of deposit. They also stimulate business activity and thus share prices are likely to rise.

Expectations for a rate cut have been boosted by inflation in Europe falling sharply to 2.9% in December from a peak of 10.6% in October 2022. In little more than a year, the ECB raised its key rate from negative levels – which made it cheaper to borrow money to buy a home or invest in a business – to a record-high 4%.

While rate hikes are the central bank’s main weapon to reduce inflation, they can also slow the economy – which has been seen in Europe and countries around the world, raising expectations for cuts now that inflation has fallen below preferred levels. Has come close to.

The economies of the 20 European Union member states that share the euro currency, where the ECB sets interest rates, shrank slightly in the July-to-September quarter of last year. Expectations for the next months are not better.

The economic squeeze comes after supply chain shortages during the COVID-19 pandemic and then a surge in inflation due to high food and energy prices linked to Russia’s war in Ukraine. The worst energy costs and supply problems have eased, but inflation has spread throughout the economy as workers push for higher wages to keep up with the rising prices they pay.

Analysts say there are good reasons for the ECB to move cautiously. For example, if inflation does not keep falling – or does not rise again – then reversing course and raising rates would only prolong the pain from tighter debt.

The second is the pace of wage growth for Europe’s workers. ECB officials have indicated they want to see wage growth data for the first months of this year before deciding where inflation is headed.

“Lagarde will keep the door open without fully committing to a first cut in June,” according to analysts at Berenberg Bank. “The market expects the first rate cut in April.”

Additionally, attacks by Yemen’s Houthi rebels on ships in the Red Sea have forced many ships carrying consumer goods and energy supplies to Europe to avoid the Suez Canal and take longer trips around the tip of Africa.

The disruption has so far not caused oil prices to rise, but has increased shipping costs for companies and underlined uncertainty about energy supplies and whether businesses can pass on higher spending to consumers, which could fuel a new round of inflation. Will give.

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Published: 25 January 2024, 07:13 PM IST


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