The European Central Bank (ECB) held rates Thursday, saying energy prices raised inflation risks and could restrain growth, while tighter financing conditions were likely to weigh on both inflation and growth.
The deposit facility rate remained at 2.50%, the main refinancing rate at 2.65% and the marginal lending facility rate at 2.90%. The ECB said measures of underlying inflation had been steady and wage behavior had yet to show a material reaction to the energy shock. The bank’s medium-term inflation goal is 2%.
Eurostat’s final data showed euro-area inflation at 3.8% year over year in September, up from 3.2% in August. Energy prices rose 18.9% over the year, compared with 14.3% in August.
In a pre-decision note, MUFG analyst Lee Hardman said higher government bond yields, particularly in France, made a rate hold more likely. The ECB’s decision referred to tighter financing conditions but did not single out France.
MUFG said a European natural gas price measure climbed about 40% in October to a 2026 high. Its research also said Germany’s two-year government bond yield had fallen about 25 basis points from its September high.
Hardman said MUFG still expected another rate increase in December and saw risks to the euro tilted to the downside. The ECB did not indicate when it might next change rates. It said future decisions would consider the inflation outlook, incoming economic and financial information, and how monetary policy was reaching the economy, without setting a future rate sequence.
The ECB said its Transmission Protection Instrument remains available if disorderly market moves seriously disrupt the transmission of monetary policy across euro-area countries. Eurostat’s flash estimate for October inflation is due Nov. 4, and the ECB’s next rate decision is scheduled for Dec. 17.
