The European Central Bank held its three key interest rates steady Thursday as annual euro area inflation reached 3.8% in September, with higher energy costs raising price risks while threatening growth.
The deposit facility rate remains at 2.50%, the main refinancing operations rate at 2.65% and the marginal lending facility at 2.90%. The ECB’s medium-term inflation target is 2%. The central bank raised all three rates by 25 basis points on Sept. 10, with the new levels taking effect Sept. 16.
Eurostat reported annual euro area inflation rose to 3.8% in September from 3.2% in August. The ECB said energy prices were 18.9% higher year over year in September, compared with 14.3% in August. September’s annual inflation rate was 1.8 percentage points above the ECB’s target.
The Governing Council said continuing energy price increases could intensify inflation pressures and weigh on economic growth. It also said financing conditions had tightened since its previous meeting and renewed energy price increases had hurt consumer confidence. Underlying inflation remained broadly stable, with no material response yet in wages, the ECB said. It added that higher financing costs were likely to weigh on growth.
The ECB said policymakers would assess incoming data at each meeting, and the Governing Council “is not pre-committing to a particular rate path.”
ING Research Global Head of Macro Carsten Brzeski expected the ECB to hold all three rates at its Oct. 29 meeting. Brzeski argued that higher bond yields had already tightened financial conditions. Brzeski’s expectation of a hold, citing bond yields as a constraint on financial conditions, also appeared in EconoTimes’ earlier report on the ECB outlook.
Eurostat is scheduled to publish its flash estimate of euro area inflation for October on Nov. 4.
