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The central bank for the 21-nation euro area is expected to keep its key deposit rate at 2% for now, where it has been since June last year. (EPA Images pic)
\nFRANKFURT: The European Central Bank is expected to hold interest rates steady again on Thursday as policymakers weigh concerns about higher inflation triggered by the Middle East war against worries about weakening growth.<\/p>\n
Energy costs have spiked since the near-total closure of the Strait of Hormuz, through which about a fifth of the world\u2019s oil and gas usually pass, following the outbreak of the US-Israeli conflict against Iran.<\/p>\n
Eurozone inflation is already picking up \u2013 it was 2.6% in March, above the ECB\u2019s 2% target \u2013 but the central bank appears reluctant to quickly hike rates, fearing higher borrowing costs could weigh on the region\u2019s already lacklustre growth.<\/p>\n
But the central bank for the 21-nation euro area is expected to keep its key deposit rate at 2% for now, where it has been since June last year, as it waits to see how the war plays out.<\/p>\n
Italian bank UniCredit wrote in a note that it did not \u201csee the urgency\u201d for the Frankfurt-based institution to act, particularly as inflation was around the ECB\u2019s target before the conflict.<\/p>\n
\u201cThe weakening of the outlook for demand, particularly for private consumption, reinforces the case for the ECB to be patient,\u201d it said.<\/p>\n
Data since the outbreak of the war have pointed to falling consumer and investor confidence, while a key survey in April showed eurozone business activity contracted for the first time in 16 months.<\/p>\n
Looking to June<\/p>\n
Other central banks are also taking a cautious approach.<\/p>\n
The Federal Reserve held interest rates steady Wednesday, its third pause in a row, as it also waits for the full impacts of the war to become clear.<\/p>\n
The Bank of England, due to meet Thursday ahead of the ECB, is also expected to keep borrowing costs on hold.<\/p>\n
But, with inflation higher than in other advanced economies, some members of its rate-setting committee may vote for a hike, analysts say.<\/p>\n
While expectations of a swift eurozone rate hike have been tempered somewhat, some are now pencilling one in for the ECB\u2019s June meeting.<\/p>\n
All eyes will be on President Christine Lagarde\u2019s post-rate call press conference for clues as to the path forward.<\/p>\n
\u201cAny hints about a June move will be taken on board,\u201d said ING bank economist Carsten Brzeski.<\/p>\n
\u2018Not in a rush\u2019<\/p>\n
Much of the inflation and growth outlook depends on whether Iran and the United States can come to a lasting agreement that secures energy supplies through the Strait of Hormuz, a factor over which the ECB has no control.<\/p>\n
Speaking in Berlin earlier this month, Lagarde said the institution was facing \u201cdouble uncertainty\u201d in that it was unclear both how long the shock would last and what its effect on the broader economy would be.<\/p>\n
ECB officials have been keen to stress that the difference between the situation now and that after Russia\u2019s invasion of Ukraine in 2022, when the central bank was criticised for moving too slowly to respond to surging inflation.<\/p>\n
At that time, an energy shock combined with post-pandemic supply chain woes and tight labour markets to push eurozone inflation to record highs.<\/p>\n
But for now, ECB officials are \u201cnot in a rush\u201d, Bank of Latvia governor Martins Kazaks, a member of the ECB\u2019s rate-setting governing council, told The Financial Times last week.<\/p>\n
\u201cWe still have the large luxury of collecting data and forming our view.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"The central bank for the 21-nation euro area is expected to keep its key deposit rate at 2%…\n","protected":false},"author":2,"featured_media":23634,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2480],"tags":[2169,18077,772,89,2487,2486,1858,2485,2760,2752,1606,2518,920],"class_list":["post-26791","post","type-post","status-publish","format-standard","has-post-thumbnail","category-euro-zone","tag-christine-lagarde","tag-ecb-decision","tag-economic-growth","tag-energy-prices","tag-euro-area","tag-euro-zone","tag-european-central-bank","tag-eurozone","tag-eurozone-inflation","tag-interest-rates","tag-middle-east-war","tag-monetary-policy","tag-strait-of-hormuz"],"_links":{"self":[{"href":"https:\/\/www.europesays.com\/europe\/wp-json\/wp\/v2\/posts\/26791","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/europe\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/europe\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/europe\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/europe\/wp-json\/wp\/v2\/comments?post=26791"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/europe\/wp-json\/wp\/v2\/posts\/26791\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/europe\/wp-json\/wp\/v2\/media\/23634"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/europe\/wp-json\/wp\/v2\/media?parent=26791"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/europe\/wp-json\/wp\/v2\/categories?post=26791"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/europe\/wp-json\/wp\/v2\/tags?post=26791"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}