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ECB keeps key eurozone interest rates steady

January 25, 2024

The European Central Bank has kept interest rates unchanged as expected, without signalling a potential pivot towards reduced rates. While inflation is easing in much of Europe, it still exceeds the ECB's 2% target.

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A Euro-sculpture and the European Central Bank (ECB)
Governors of the European Central Bank were all in agreement that it was too early to discuss bringing down interest rates, according to ECB President Christine LagardeImage: Ralph Orlowski/Getty Images

The European Central Bank (ECB) kept its key interest rates on hold for a third straight month on Thursday. 

All three of the central bank's rates will remain where they have been since September 20. 

ECB President Christine Lagarde confirmed the bank's decision in the first press briefing of 2024 saying inflation trends "broadly" confirmed the bank's previous assessment but removed a reference in previous statements to elevated domestic price pressures and strong labour cost growth.

"Aside from an energy-related upward base effect on headline inflation, the declining trend in underlying inflation has continued and our past interest rate increases keep being transmitted forcefully into financing conditions," Lagarde said.

"The Governing Council’s future decisions will ensure that its policy rates will be set at sufficiently restrictive levels for as long as necessary," the ECB said in its statement. 

Key rate to remain at 4.5%

The most important of the three, the main refinancing operations rate charged on regular loans to commercial lenders, will stay at 4.5%. 

The marginal lending facility, for shorter-term emergency borrowing by banks, stands at 4.75%. And the deposit facility, the rate the ECB pays lenders for funds deposited with it over short periods, will stay at 4%. 

Prior to several months of stable rates, the ECB had been hiking interest rates steadily in a bid to contain inflation — caused by a combination of factors including the aftermath of the COVID pandemic and Russia's invasion of Ukraine. 

Raising interest is seen as a tool to combat inflation because it discourages borrowing and therefore spending.

The rates rose from the unprecedented lows of most of the 21st century back to the current levels, far closer to where they had tended to sit historically. 

Some investors had hoped for indications of the rates starting to be cut once again, but the ECB's statement on Thursday did not hint at this prospect. 

European economy shows staying power in face of crises

The Federal Reserve in the US has been able to start bringing rates back down again, but it also reacted much more promptly to rising inflation in 2022, starting its rate increases several months before the ECB did.

msh/kb (AFP, dpa, Reuters)