18 July 2024
If you are covering the news that the European Central Bank has kept interest rates unchanged, please find below a comment from Lindsay James, investment strategist at Quilter Investors:
“Since the European Central Bank cut rates last month, events have somewhat overtaken the narrative and as such it is unsurprising to see the central bank take no action at its latest meeting. The outcome of the French election has introduced a new risk to European economic growth, and while market reaction in the continent has been fairly muted to date, it comes as the backdrop and outlook for inflation looks uncertain once again.
“Like the rest of the developed world, inflation has been stubborn and difficult to tame. While overall levels of inflation are down to more palatable levels in Europe, the underlying drivers remain too high and thus the ECB will be gradual in its response. A hold today was always the likely outcome, but attention now turns to September where the next rate cut was being signalled for.
“We have to consider the global context, however, especially with events unfolding in the US. With Joe Biden looking increasingly likely not to be the Democratic candidate in November’s presidential election, the potential market fall out of this and a Federal Reserve facing simultaneous calls to cut and hold rates in September, the ECB might find holding rates again at its next meeting is the easy option. Given this picture, the ECB is facing a tricky balancing act, especially if growth in Europe becomes increasingly challenged.”
