Financeupdated 1h ago2 min read
Archive photo · 25 March 2022Christine Lagarde Says ECB Keeps Rates Unchanged, Citing Rising Energy Prices And Inflation Risks
4 Western Mainstream2 Asian2 West Asian1 OtherPhoto: European Parliament from EU, CC BY 2.0 · Cropped for layout
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ECB leaves key rates unchanged: 2.50% (deposit), 2.65% (refinancing), 2.90% (lending). Rising energy prices pose upside risks to inflation and growth.
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ECB holds rates steady
The European Central Bank left its key interest rates unchanged, keeping the deposit facility at 2.5 percent, the main refinancing operations at 2.65 percent, and the marginal lending facility at 2.9 percent. Christine Lagarde said, "We are in a sufficiently solid position to await new data," after the Governing Council discussed whether to raise rates but decided to keep them where they are. The ECB warned that "energy prices have continued to rise, which poses upside risks to the inflation outlook and downside risks to the growth outlook," linking the decision to the energy shock.
The ECB also said euro area inflation surged in September to 3.8 percent from 3.2 percent in August, hitting a three-year high. The ECB scheduled its latest edition of the staff projections for December, as it continued a data-dependent, meeting-by-meeting approach to monetary policy.
Energy shock and bond stress
Christine Lagarde warned that the energy shock could drive up inflation and lower growth, saying, "The increased magnitude and duration of the energy shock" are likely to do so. The ECB also tied its outlook to bond-market stress, with EL PAÍS reporting that the risk premium for French sovereign debt had driven it to levels not seen since 2011. EL PAÍS said the spread demanded by the market to buy a French bond versus a German one "has reached 175 basis points," and it added that the French 10-year bond surpassed 5% for the first time since 2022.
The ECB’s statement emphasized that there were "no signs of second-round effects" beyond what was forecast, while it continued to flag downside risks to growth. Morningstar’s Michael Field said, "December is the date penciled in by most economists for another rate hike," as the next inflation data point was expected to guide the ECB’s next step.
December hike in focus
The ECB’s pause kept the deposit facility at 2.5 percent and the main refinancing rate at 2.65 percent, while it signaled that December could bring a new move. Lagarde said, "unless important events occur, the direction of travel is fairly clear for all of us," and she later confirmed that the pace of a rate rise per quarter remains valid. Expansión said the ECB anticipated a rate hike in December after keeping rates unchanged at 2.5 percent, pointing to rising sovereign bond yields and tighter funding conditions.
The ECB also warned that highly indebted countries should factor in the possibility of interest rates staying high into their financial planning, as Lagarde urged adherence to European Union fiscal rules. Al Arabiya Business said the ECB warned that inflation risks are rising due to the sharp rise in energy costs, and it cited a Reuters expectation that the ECB would deliver only one or two additional rate increases before ending its current tightening cycle.
