Unlock the Editor’s Digest for Free

European Central Bank Keeps Interest Rate Unchanged

The European Central Bank (ECB) has decided to keep its main interest rate at 3.75% amid concerns about geopolitical uncertainty and rapid wage rises. This decision was expected by the market, and the euro fell against the dollar after the announcement.

ECB Chief Christine Lagarde’s Comments

ECB President Christine Lagarde stated that the decision on a possible rate cut in September is "wide open" and will be determined by the data received. She emphasized that the governing council had agreed not to provide guidance on future rate decisions. Lagarde also downplayed fears of sticky price pressures, saying that recent wage increases did not come as a surprise and are expected to rise less quickly over the next two years.

Eurozone Economy and Inflation

The ECB wants to see more evidence that inflation, which slowed to 2.5% in June, is on track to fall to its 2% target by the end of next year. The governing council stated that recent data "broadly supports" this scenario, playing down signs that services inflation could remain high. The Eurozone is facing wage growth of 5%, but Lagarde believes that wages will rise less quickly over the next two years.

Growth Concerns

The ECB is concerned about the growth of the Eurozone economy, which is expected to have grown at a slower pace in the second quarter than in the first three months of the year. Risks to growth are "tilted to the downside," and Lagarde stressed that the economy will need to grow at a moderate pace to ensure low inflation.

ECB’s Future Plans

The ECB will start an assessment of its new strategy next year and present the results. The president also ruled out changes to its 2% inflation target or the idea of publishing rate expectations of individual policymakers.

Conclusion

The ECB’s decision to keep interest rates unchanged is a cautious approach, taking into account the uncertainty surrounding the economy and inflation. The governing council is focusing on achieving its 2% inflation target and is willing to keep rates high to achieve this goal. The decision has implications for the Eurozone economy, and it will be important to monitor the developments in the coming months.

Frequently Asked Questions

Q: Why did the ECB keep interest rates unchanged?
A: The ECB kept interest rates unchanged due to concerns about geopolitical uncertainty and rapid wage rises.

Q: What is the ECB’s inflation target?
A: The ECB’s inflation target is 2% by the end of next year.

Q: Will the ECB cut interest rates in September?
A: The decision on a possible rate cut in September is "wide open" and will be determined by the data received.

Q: What is the current interest rate in the Eurozone?
A: The current interest rate in the Eurozone is 3.75%.

Q: How is the Eurozone economy performing?
A: The Eurozone economy is expected to have grown at a slower pace in the second quarter than in the first three months of the year, and risks to growth are "tilted to the downside."

Author: www.ft.com

Orginal Source link