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File photo - The sun sets over the buildings of the banking district and the European Central Bank, right, in Frankfurt, Germany Alamy Stock Photo

European Central Bank keeps interest rates steady for first time in over a year

The decision ends a streak of nearly a dozen straight hikes to interest rates.

LAST UPDATE | 26 Oct 2023

THE EUROPEAN CENTRAL Bank has held interest rates steady for the first time since July 2022.

The decision ends a streak of 10 straight hikes that has seen interest rates climb faster and further than ever.

Since July 2022, the ECB has cranked rates up by 450 basis points to tackle inflation driven in large part by surging energy prices in the wake of Russia’s invasion of Ukraine.

The long-tightening cycle has left the key deposit rate at 4%, its highest mark in the history of the central bank.

It was expected that the interest rates would be left unchanged as previous policy moves seemed to be biting. 

Eurozone inflation has started to settle in recent months, falling to 4.3% in September from its double-digit peak towards the end of last year.

While the figure is still more than twice the ECB’s target of 2%, rising borrowing costs have also shown signs of weighing on the currency bloc.

The Frankfurt-based institution’s September economic projections revised down the forecast for growth in the eurozone, while the outbreak of the conflict in the Middle East has further clouded the horizon.

As such, the ECB was unlikely to “seriously” think about raising rates again at the moment “amid rising uncertainty over the global outlook”, said Pictet analyst Frederik Ducrozet.

‘Clear impact’

ECB policymakers were in “watch and see” mode today, Ducrozet said, with new official forecasts only set to be published at the governing council’s next meeting in December.

The most recently released economic data, however, painted a pessimistic picture of the eurozone that could encourage policymakers to hold off from more hikes.

Business activity in the bloc slumped in October, according to a closely watched Purchasing Managers’ Index (PMI) survey put out by S&P Global, raising the possibility of a mild recession in the second half of 2023.

Eurozone banks have also been tightening their lending criteria for households and businesses, according to the ECB’s own survey of financial institutions published this week.

“Weaker economic conditions and higher interest rates are having a clear impact”, said ING economist Bert Colijn.

The borrowing squeeze was a sign that the ECB’s monetary policy was feeding through “forcefully” to the economy, Colijn said.

A good reason not to hike further, he suggested, “especially given the fact that the ECB itself only expects the biggest impact of higher rates in early 2024″.

The central bank could meanwhile consider winding down its balance sheet faster than currently planned to further apply the brakes on inflation.

Pause or plateau?

ECB President Christine Lagarde has acknowledged the “pain” felt by consumers as a result of aggressive rate hikes but had cautioned against relenting too soon.

While inflation has come down, the ECB does not expect it to return to the target of 2% before 2025, according to its most recent projections.

Jack Allen-Reynolds of Capital Economics said holding rates at their current levels this week could be presented as a temporary “pause” but there was every chance of the pause becoming a “plateau”.

The question now, according to Pictet analyst Ducrozet, was “how long policy rates should be kept at current levels”.

© AFP 2023

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    Install the app to use these features.
    Mute Patrick Presley
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    Oct 26th 2023, 8:49 AM

    Enough punishment has been administered for the moment.

    186
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    Mute Donal Ronan
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    Oct 26th 2023, 9:08 AM

    Oops! Less profit for our robber banks, seeing as this is where they make most of their profits, lodging our deposits with the ECB.
    Just another way of socialising their profits at European taxpayers expense.

    97
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    Mute did you every wonder
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    Oct 26th 2023, 1:55 PM

    @Donal Ronan: But we have a regulator, apparently, that keeps prices in check !. Works great for energy and food prices !. Tax payers money at work.

    23
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    Mute larry smith
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    Oct 26th 2023, 9:03 AM

    A bank is being robbed by two gunmen . Everything went smoothly , quickly and quietly ,however before exiting the bank one gunman says to the other what kind of robbery is this if know one is injured or killed “you’re right kill that woman over there “says the other gunman ,
    What’s your name he asks the cashier the woman feebly replied Sophia,
    I can’t kill her as my wife is call Sophia,ok kill the man beside her ,hey fella what’s your name ,,Billy says the man but everyone calls me Sophia .

    108
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    Mute Liam Foy
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    Oct 26th 2023, 11:01 AM

    In what do we believe a bunch of very wealthy individuals in the ECB hiking interest rates, how well expert with experience are they. Lagarde is no expert but she leads the charge. Inflation has got much worse and still the EU has no idea how to contain it like the Japanese at their 3%. But their we go punishing decision for the average family is put off into some future date.

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    Mute Roy Kenneally
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    Oct 26th 2023, 1:39 PM

    @Liam Foy: Inflation isn’t worse. It was 8.6% in Sept 2022 and 5% in Sept 2023, ie. slowing down. It means the price of things are still going up, but not as quickly.

    13
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    Mute Paddy C
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    Oct 26th 2023, 1:48 PM

    Lagarde said when she was here ‘she feels our pain’ doubt that somehow on her salary, pushing people into arrears and possibly homeless great work alright.

    34
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    Mute Timo
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    Oct 26th 2023, 12:08 PM

    And lucky to get 1.5% on a 5 year deposit account.
    What a joke

    28
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    Mute Pato
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    Oct 26th 2023, 9:39 AM

    Have the idiots in the ECB finally recognised what everyone else knew all along, that hiking rates the way they did would eventually cause inflation rather than cure i

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    Mute Monetpenny
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    Oct 26th 2023, 12:33 PM

    @Pato: no. They didn’t get it during & in the aftermath of the 2007-2008 financial crash either. It is written in a widely read economics textbook somewhere that to control inflation (no matter what the cause or type of inflation) you must (‘MUST’ I tell ya) increase interest rates. So they do it.
    If inflation is ‘imported’ or is caused by government lockdowns & subsequent spending to stimulate an economy the government sedated or wars or foreign government policies that affect energy supply & costs it doesn’t matter.
    We don’t stop those wars. We don’t reverse government policy & increase energy supply.
    We increase interest rates.

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    Mute Mick Duvanny
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    Oct 26th 2023, 1:41 PM

    @Monetpenny: See Turkey for what happens when you reduce interest rates during high inflation

    13
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    Mute Eddie Garvey
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    Oct 26th 2023, 3:36 PM

    They printed so much money to keep the economies booming, which had the effect of devaluing our money and our wages, which caused inflation to strike, then they massively increased interest rates to stop people spending the money they added to the system. They are literally making it up as they go along to ensure the wealthy stay wealthy

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    Mute World Taekwondo Association Master Sheamus
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    Oct 26th 2023, 11:02 AM

    About Time, Seriously

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    Mute Des Leavy
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    Oct 26th 2023, 10:51 AM

    Comments Closed

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    Mute Jonathan Hanlon
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    Oct 26th 2023, 1:35 PM

    Please start dropping

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    Mute Alan Fitzgerald
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    Oct 26th 2023, 2:45 PM

    Surely a huge chunk of inflation is down to energy price increases and interest rates increases will have little to no effect on these. Government tax and excise increases also fuels the fire and again interest rates won’t effect these.

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    Mute R Incognito
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    Oct 26th 2023, 2:32 PM

    My fixed rate @ 2.6% is ending in November. Should I re-fix @ 4.15% ( lowest fixed rate available to me ) or stay on a variable @ 4.50% and wait and see if things improve ? I don’t know what to do :-(

    7
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    Mute Paddy C
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    Oct 28th 2023, 9:25 AM

    @R Incognito: very hard one to answer,Im on tracker and my mortgage is up through the roof now for not fixing it and I was also advised to fix it unless I was sure I could keep up with rising payments but if I fix tracker is gone and too long left to go,the only thing I would say is if you could fix it short term at least you wouldnt be after commiting to it too much,a long fixed rate is a nightmare if rates drop, we were on fixed years ago of 5.4 and crash came and rates dropped and losing a fortune had to pay 4,600 to break out of it for the mortgage to drop 400 a month so my advice is if it’s variable try short term fixed especially now that they’re pausing increases

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    Mute
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    Oct 26th 2023, 2:07 PM

    Increasing interest rates to combat this inflation is very close to being useless. Majority of the inflation is a result of the increase in oil prices and from the war in Ukraine affecting supply of various commodities including grain. A serious question for ECB, how does increasing interest rates change oil prices or increase supply of commodities. Wouldn’t it more effective having more constructive negotiation with the Saudis and other oil producers. Also putting a ceiling on the price of basic goods, bread, eggs, pasta, etc. Increasing interest rates was always a possibility of causing recession, plus more unnecessary pain for the less well off.

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    Mute John Moore
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    Oct 26th 2023, 3:43 PM

    Rising interest rates is the only tool that the ECB have to combat inflation. But it can only do so much unless you really want to jack up rates and cause a pretty bad recession. But ECB technocrats act as though tinkering with rates contains all of the answers. It’s mostly for show to look as though they are doing something. About half of the price rises are through companies profiteering. Banks are not passing on nearly enough of the windfall through deposit rates. Whatever way the consumer turns they lose.

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    Mute
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    Oct 26th 2023, 11:00 AM

    I have many money

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    Mute Michael Burke
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    Oct 26th 2023, 1:57 PM

    And few brains cells.

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