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The European Central Bank left interest rates unchanged, ending its unprecedented 10 consecutive hikes in borrowing costs amid growing concerns over euro zone growth.
The decision, announced after a meeting of ECB rate-setters in Athens, was expected by analysts after eurozone inflation halved from its peak and the economy showed signs of weakening.
The benchmark deposit rate now stands at 4 percent — four and a half percentage points higher than its all-time low of minus 0.5 percent.
The ECB pause comes ahead of decisions by the US Federal Reserve and the Bank of England next week, in which their rates are expected to remain steady as inflation slows.
However, they still have to decide how long to raise rates to reduce price pressures to their 2 percent target.
In the eurozone, concerns about inflation come against growing worries about the economy’s weakness. Analysts expect GDP figures for the third quarter due next week to show a contraction in the release.
ECB President Christine Lagarde said on Thursday that growth would be “weak for the rest of the year” as the impact of higher interest rates “broadened”.
Eurozone inflation eased to 4.3 percent in September from a peak of 10.6 percent a year ago. Some economists expect a 3 percent drop when October price data is released on Tuesday.
However, Lagarde said inflation is still expected to remain “very high for a long time”. He added that the conflict between Israel and Hamas would further increase energy prices.
Despite fears that war could spread across the Middle East, oil prices have remained slightly lower since the last ECB meeting six weeks ago. However, European natural gas prices have risen by a third over that time amid concerns about supply disruptions.
The ECB said keeping rates at current levels for a “sufficiently long period” would make a “significant contribution” to achieving its inflation target. “Rates will be set at a sufficiently controlled level until required,” it added.
Economists believe rates are unlikely to rise further due to weak growth, with several warnings of a possible slowdown after a survey of purchasing managers and bank credit data this week pointed to a sharper-than-expected contraction.
Paul Hollingsworth, chief economist for Europe at French bank BNP Paribas, said the “barrier to hiking again is relatively high”, adding that growth and inflation in the eurozone would be “if not weaker than the ECB’s tone”. own predictions.
But ECB policymakers have not ruled out further rate hikes.
“The fact that we’re holding doesn’t mean we’ll never raise again,” Lagarde said, adding that it was “absolutely premature” to discuss when borrowing costs might start to fall.
The ECB expects no growth in the third quarter with inflation averaging 5 percent.
Lagarde said there were now signs that the previously strong labor market was “weakening” although she expected growth to pick up “in the coming years”.
Financial markets largely broke the pause, with equities stuck in negative territory and government bonds steady.
The regional Stoxx Europe 600 was 0.8 percent lower in afternoon trade, while France’s Cac 40 and Germany’s Dax were down 0.7 percent and 1.3 percent.
The yield on 10-year German bonds was down 0.01 percentage points at 2.87 percent, while the yield on Italy’s 10-year bond was down 0.02 percentage points at 4.89 percent. The euro was down 0.3 percent against the dollar.
The ECB was expected to begin discussions on ending reinvestments in its €1.7tn portfolio of pandemic bond purchases and cutting interest rates paid on commercial banks’ deposits. But Lagarde said nothing was discussed at this week’s meeting.
Additional reporting by George Steer