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ECB keeps interest rates unchanged. What does this mean for the euro exchange rate?
The ECB kept rates unchanged, but the market is still betting on a move in December
The ECB (European Central Bank) left its three key interest rates unchanged in October. The deposit rate remained at 2,50%, the main refinancing rate stood at 2,65%, and the marginal lending rate stayed at 2,90%.
The decision did not surprise the market. Expectations had already been for the October meeting to bring no further rate hike. The futures market was pricing in just a 3% chance of a 25 pb move.
The central bank says energy prices are still rising. That increases risks for inflation and economic growth. The statement also said the ECB remains committed to bringing inflation back to its 2% medium-term target.
For now, monetary policy in the euro area therefore remains in cautious mode. In September, the ECB raised rates for the second time this year by 25 pb, and the first hike came in June, also by 25 pb. Rates were left unchanged in July.
Inflationary pressure has not gone away. In September, HICP (Harmonised Index of Consumer Prices) inflation in the euro area reached 3,8% and was the highest in three years. PKO BP analysts noted this morning that before making another move, the ECB wants to assess the impact of the previous rate hikes on the economy and how the energy shock is feeding through into core inflation and wages.
The picture could be different at the December meeting. The next Governing Council decision-making meeting is scheduled for 16-17 December, and as of noon today, the market was pricing in nearly an 85% chance of a 25 pb rate hike.
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