ECB leaves rate at record high

THE European Central Bank left its key interest rate at a record-high 4 per cent on Thursday (Jan 25) and noted underlying inflation had continued to fall, also thanks to high borrowing costs.

“The declining trend in underlying inflation has continued, and the past interest rate increases keep being transmitted forcefully into financing conditions,” the ECB said.

With Thursday’s decision, the ECB left the rate it pays on bank deposits, the benchmark for borrowing costs in the eurozone, at 4.0 per cent – its highest level since the ECB was created – and repeated it would stay there for some time.

“The Governing Council is determined to ensure that inflation returns to its 2 per cent medium-term target in a timely manner,” the ECB said. “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.”

Before the announcement, investors were betting on the ECB to start cutting that rate as soon as April and to continue doing so at each meeting until the end of the year to leave it at 2.50 per cent to 2.75 per cent in December.

But most ECB policymakers have been trying to cool the market’s enthusiasm, saying more data was needed, particularly about wage growth.

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The ECB’s two other rates were also left unchanged. Banks will be charged 4.50 per cent to borrow at the ECB’s weekly auctions and 4.75 per cent at daily ones. REUTERS