25 January 2024
If you are covering the news that the European Central Bank has left interest rates unchanged, please see the following comment from Richard Carter, head of fixed interest research at Quilter Cheviot:
“As was expected, the European Central Bank has once again held interest rates, reiterating its reluctance to begin making cuts despite the ever mounting pressure to do so.
“Inflation had been falling consistently in the Eurozone but saw an unwanted uptick to 2.9% in December, adding fuel to the ECB’s relatively hawkish position. Markets have been anticipating cuts to begin as early as the spring, but the ECB appears fearful that cutting rates too soon could do more harm than holding them higher for too long. However, the weakening economic outlook will be of grave concern and could prompt a move towards cuts sooner than the ECB might have hoped in an attempt to stimulate growth.
“The ECB will also be keeping a watchful eye on the labour market in the coming months. Wage inflation is a real concern given it currently sits at almost double headline inflation, while unemployment is running at a record low of 6.4%, so any signals from the labour market will be important factors in its decision making going forward.
“Given it took such a cautious stance at the beginning of the rate hiking cycle, the ECB will likely be reluctant to take a decisive lead in making cuts – though soon it may have no choice. However, it will want to ensure inflation is well under control and that there wouldn’t be any unintended consequences from its actions, so it is likely to cling to its higher for longer message for as long as possible.”
