ECB leaves rates unchanged. “Inflation above target also in the coming year”

Brussels – Domestic price pressures are still high, services inflation is elevated, and overall inflation “is likely to remain above target in the coming year.” Adding to this are the uncertainties related to geopolitical tensions, and the Governing Council of the European Central Bank exerts caution and leaves interest rates unchanged. They remain firm at the levels decreed last month when the ECB opted for the cut. Therefore, the interest rate on the primary refinancing operations remains at 4.25 per cent, the interest rate on the marginal lending facility is stuck at 4.5 per cent, and the interest rate on the deposit facility falls to 3.75 per cent.

Neither does the Eurotower’s line change. To ensure price stability and reach the 2 per cent benchmark target as soon as possible, the Frankfurt-based institution intends to maintain “sufficiently restrictive rates for as long as necessary.” The Governing Council, reiterates once again the president of the ECB Christine Lagarde, “will continue to follow a data-driven, meeting-by-meeting approach.” Words that, in the light of the frictions of a month ago, seem to reassure about the intention to make technical rather than political decisions.

“We do not have a set path on rates and their levels,” said Lagarde. Which is precisely why she does not mince words about future decisions. “The question of what will happen in September and what we will decide in September is completely open.” Hence, no commitment to rate cuts. But neither they are ruled out. In any case, she adds, “we are ready to adjust all our instruments at any time”, but always “based on data” and developments. In this regard, the Eurotower’s number one warns that “risks for inflation remain on the upside” due to uncertainties related to extreme weather changes that “could drive up food prices” and ongoing conflicts.

Net of these upside risks, Lagarde emphasised, inflation is expected to “fluctuate around current levels until the end of the year“, and then enter a downward parabola and “decline towards the reference target in the second half of next year.” The return to a 2 per cent inflation therefore seems to be postponed beyond the optimistic expectations aired by Lagarde herself a few months ago.