ECB keeps policy interest rates unchanged; points to slowing inflation

The European Central Bank (ECB) on Thursday decided to leave its policy interest rates untouched, following its assessment of a declining trend in inflation rate. ECB said despite the energy-related upward movement, the underlying base rate of inflation continues to be below the 2 per cent target. 

ECB said the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 4.50 per cent, 4.75 per cent, and 4.00 per cent, respectively.

The already tight financing conditions resulting from earlier rate hikes are dampening demand, and this is helping to push down inflation, it added.

This, according to the bank, could affect financing conditions and dampen economic growth.

While the ECB considers the key interest rates have been at elevated levels for a sufficiently long duration, the bank said its future decisions will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction. 

“In particular, our interest rate decisions will be based on our assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission,” the bank said.

While the bank is determined to ensure that inflation returns to the two per cent medium-term target as expected, the Governing Council’s future decisions will ensure that the policy rates are at sufficiently restrictive levels for as long as necessary, says an ECB release.

ECB has called upon EU governments to continue rolling back energy-related support measures to avoid driving up medium-term inflationary pressures. Also, fiscal and structural policies should be designed to support productivity and competitiveness of the economy, while also bringing down high public debt ratios in a phased manner. The bank also called for the formation of a capital markets union and the completion of banking union.

The Euro remained in a tight range against the US dollar, trading between 1.0870 and 1.0902 on Thursday as traders waited for ECB press conference due later in the day.