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The European Central Bank has kept interest rates unchanged, bringing an end to its unprecedented streak of 10 consecutive increases in borrowing costs.
The decision, which was announced after ECB rate-setters gathered in Athens for their annual meeting outside of the bank’s Frankfurt headquarters, was expected by analysts after eurozone inflation more than halved from its peak and the economy showed signs of weakening.
The benchmark deposit rate is now 4 per cent — four-and-a-half percentage points above its all-time low of minus 0.5 per cent.
Rate-setters must now assess how long rates need to stay high to return inflation to their target of 2 per cent.
ECB president Christine Lagarde will hold a press conference later today to discuss what the conflict between Israel and Hamas could mean for energy prices and whether the eurozone economy may contract in the second half of this year.
Oil prices remain slightly below where they were at the last ECB meeting six weeks ago, despite fears war could spread through the Middle East. However, European natural gas prices have climbed about a third in that time amid worries about supply disruptions.
Eurozone inflation has dropped from a peak of 10.6 per cent a year ago to 4.3 per cent in September. Some economists think it could fall close to 3 per cent when October price data is published on Tuesday.
Third-quarter gross domestic product figures for the 20-country single currency bloc are also due out on Tuesday and some economists expect output to shrink, putting more strain on the hitherto resilient labour market and adding downward pressure to prices.
“The bar for resumed hiking appears relatively high,” said Paul Hollingsworth, chief economist for Europe at French bank BNP Paribas, adding that growth and inflation in the eurozone were “on track to be in line with, if not weaker than” the ECB’s own projections.
The ECB expects no growth in the third quarter, with inflation averaging 5 per cent.
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