The European Central Bank has kept interest rates unchanged, bringing an end to its streak of 10 consecutive increases in borrowing costs.
The decision, which was announced after ECB rate-setters gathered in Athens for their annual meeting outside of the bank’s Frankfurt headquarters, was expected by analysts after eurozone inflation more than halved from its peak and the economy showed signs of weakening.
The benchmark deposit rate is now 4%.
As inflation is "expected to stay too high for too long, and domestic price pressures remain strong," the central bank said it expects rates will need to be "maintained for a sufficiently long duration" to bring things back to its 2% CPI target.
However, it was noted that inflation dropped markedly in September, that most measures of underlying inflation have continued to ease, and that past interest rate increases "continue to be transmitted forcefully into financing conditions", it was noted, which is increasingly dampening demand and helping push down inflation.
At the press conference after the decision, ECB president Christine Lagarde added that it is much too premature to talk about rate cuts.
However she also made some more dovish comments, economists noted.
It was a "dovish pause", said Carsten Brzeski at ING Bank, adding that "a clearly more cautious ECB increasingly seems to embrace the idea that the peak in policy rates has already been reached".
He felt the ECB "has never been more worried about the growth outlook and relatively relaxed about potential new inflation waves, stemming from oil prices",. meaning that unless the eurozone economy "miraculously rebounds" in the coming weeks he expects the pause to be "the end of the hiking cycle".
Claus Vistesen at Pantheon Macroeconomics said he "detected three dovish elements in the president’s comments", including emphasising on several occasions that economic growth is now weakening, even hinting that risks are now tilted to the downside for the ECB’s December growth forecasts.
Secondly, Lagarde said the council did not discuss increasing the pace of tightening, and thirdly she noted that the council is watching the rise in long-term interest rates for risks that this could impair financial stability, in banks and elsewhere, rekindling fears of a repeat of the SVB chaos earlier this year.
Holger Schmieding at Berenberg thinks that after ten consecutive rate hikes, the European Central Bank (ECB) is settling in on the policy plateau.
Although the bank kept its options open upon agreeing unanimously to leave rates unchanged at its offsite meeting in Athens today, its message seems clear.
In the absence of any major surprise, rates will stay at their current levels for the foreseeable future, Schmieding believes.
“Unlike the US Fed, which we expect to start cutting rates in spring 2024, the ECB will probably stay largely put next year, in our view, followed by no more than a modest easing in 2025,” Schmieding said.