As expected, the European Central Bank kept all its key interest rates unchanged at the July interest rate meeting.
The interest rate for basic financing operations, i.e. the guiding interest rate, remained at 4.25 percent, the interest rate on the overdraft facility at 4.50 percent, and the deposit interest rate at 3.75 percent.
The ECB lowered all its key interest rates by 0.25 percentage points at the June interest rate meeting. Before today’s interest rate meeting, the market estimated that the next interest rate cut is relatively likely to take place in September.
The market will reprice the schedule for the next interest rate cut based on what the ECB’s official statement and the Governor Christine Lagarden the information conference held half an hour after the announcement of the interest rate decision can be interpreted.
According to the ECB, the inflation trend in the euro area has been in the right direction and the latest data generally support the previous assessment of the medium-term inflation outlook.
“Although some indicators of core inflation rose in May due to one-off factors, the vast majority of indicators remained unchanged or decreased in June. As expected, the effect of the rapid rise in wages on inflation has been dampened by profits,” the ECB says in its statement.
In June, consumer prices in the euro area rose by 2.5 percent year-on-year, slowing down slightly from the previous month, when the year-on-year change was 2.6 percent. Core inflation remained at the previous month’s level of 2.9 percent.
The ECB notes that financial conditions are still tight due to monetary policy. At the same time, price pressures within the euro area are still high, service price inflation is fast, and according to the ECB’s estimate, overall inflation will remain faster than the target for a good while into next year as well.
The ECB emphasizes that its goal is to return the medium-term inflation rate to the two percent target within a reasonable period of time.
“In order to achieve the goal, the policy interest rates will be kept sufficiently restrictive as long as necessary. The ECB Council will continue to determine the level and duration of restrictiveness on a meeting-by-meeting basis based on the latest information,” the ECB states.
In the future, the ECB’s interest rate decisions will be based especially on an assessment of the inflation outlook, which takes into account the latest information on the economy and financial conditions, the development of core inflation and how strongly monetary policy is transmitted to the economy.
“The ECB Council does not pre-commit to any specific interest rate,” the statement says.
Source: www.arvopaperi.fi
