European Central Bank keeps interest rates unchanged

The European Central Bank (ECB) announced that it has decided to shrink its balance sheet more rapidly while maintaining interest rates at 4.50 percent, as expected. The European Central Bank (ECB) left its 3 main policy rates unchanged. In a statement made by the ECB, it was noted that the Bank decided to leave its 3 main policy rates unchanged, maintaining the refinancing rate at 4.50 percent, the deposit rate at 4 percent, and the marginal funding rate at 4.75 percent. The expectation of 59 economists who participated in the Bloomberg survey was that interest rates would remain unchanged. In the ECB decision text, it was stated that it was decided to advance the normalization of the Eurosystem balance sheet, and that the reinvestment redirection within the framework of the 1.7 trillion-euro Pandemic Emergency Asset Purchase Program (PEPP) will not continue after the end of 2024. The Bank will reduce the reinvestment of income obtained from the PEPP program by 7.5 billion euros per month starting from the second half of 2024. On the other hand, the decision text included the following statements: “The Governing Council’s future decisions will ensure that policy rates are set at sufficiently restrictive levels for as long as necessary. We will continue to follow a data-dependent approach to determine the appropriate level and duration of restriction.” Lagarde: We are dependent on data, not time, for interest rate cuts ECB President Christine Lagarde made the following statements at the press conference held after the interest rate decision: “We have revised downward our 2023 and 2024 inflation expectations. Although inflation has fallen recently, it may rise slightly in the short term. Previous interest rate hikes continue to show their effects. We will determine the level and duration of tightening by continuing to depend on data. We think economic activity will contract in the short term. Governments should reconsider incentives as the energy crisis subsides. Inflation has fallen in the last 2 months. We expect inflation to rise in December due to the base effect. Extreme weather conditions may push up food prices. Risks to economic growth are still to the downside. Banks in the Eurozone have shown how strong they are. If the funding costs of banks increase further, the difficult situation on the economy may bring a negative picture. For a long time, interest rates will help us reach our inflation targets. We are dependent on data, not time, for interest rate cuts. We foresee headline inflation as 2.1 percent in 2025. The transitivity of monetary policy is very strong. We should never let our guard down. Our main tool will continue to be interest. We did not talk about interest rate cuts."