ECB keeps rates unchanged, awaiting September data — MercoPress

ECB keeps rates unchanged, awaiting September data

European Central Bank President Christine Lagarde said 2024 would be a year of “slower growth and heightened uncertainty.”

The European Central Bank (ECB) left its main interest rate unchanged at 3.75%, but President Christine Lagarde said a rate cut was possible at its next meeting in September. However, she warned at a press conference after the rate cut was announced last Thursday that risks to economic growth remained.

Ms. Lagarde pointed out that domestic price pressures remain high, inflation in the services sector is rising, and the overall inflation rate is likely to remain above the medium-term target (2%) next year.

She said 2024 would be a year of “slower growth and heightened uncertainty” and played down the “stickiness” of recent inflation, saying it was largely due to one-off factors.

Euro zone government bond yields fell, especially at shorter-dated dates that are more sensitive to the ECB’s rate outlook. Italy’s benchmark two-year bond yield fell to a six-month low of 3.09%.

Lagarde took both opportunities to point out risks facing the export sector, which has traditionally been an important engine of growth in the region.

Eurozone exports fell more than 4% in the first quarter from a year earlier, European Central Bank data showed, as slowing U.S. demand and the loss of cheap Russian gas had a long-term impact on energy-intensive manufacturing.


President Lagarde also hinted that she was unhappy with China’s efforts to grab market share in Europe through exports as it tries to recover from a recession caused by the bursting of its real estate bubble.

Over the past two years, the yuan has depreciated by about 13% against the euro, strengthening China’s competitive advantage in the world market.

Lagarde said exports were “an area we will be watching very closely to see how the data develops in the future” and also kept a close eye on “the competitive position of the European Union and the euro area vis-à-vis other economies, notably China”.

Lagarde was also careful not to commit to any new monetary policy easing, after the ECB cut rates in June for the first time since the pandemic. Instead, she stressed the central bank’s determination to maintain its “data-dependent and meeting-by-meeting approach” and said the outcome of its next meeting in September “hangs in the balance” — even though financial markets are all but certain of a second quarter-point cut.

The decision was widely expected after the central bank cut interest rates last Thursday from a record high in June. While analysts agreed that current rates were “too tight, with deposit rates now more than a percentage point above current inflation,” they said the ECB could tread carefully.