The European Central Bank held its key rates steady Thursday, while Brown Brothers Harriman put the chance of a December rate increase at 86% and the euro moved back above 1.1200.
The ECB kept its deposit facility rate at 2.50%, its main refinancing rate at 2.65% and its marginal lending rate at 2.90%. ECB President Christine Lagarde said the Governing Council would assess incoming data at each meeting and was “not pre-committing to a particular rate path.”
Eurostat’s preliminary flash estimate showed euro area GDP grew 0.4% quarter over quarter in the third quarter, down from 0.6% in the second quarter; the estimate is subject to revision. Annual inflation rose to 3.8% in September from 3.2% in August, while energy inflation climbed to 18.9% from 14.3%.
The ECB cited energy prices as an upside risk to inflation and a downside risk to growth. It also said tighter financing conditions were weighing on inflation and economic activity.
In an Oct. 30 note, Brown Brothers Harriman analyst Elias Haddad put the chance of a December ECB increase to 2.75% at 86%. He said market pricing implied nearly 75 basis points of ECB tightening over the next 12 months. Those are BBH assessments; the ECB has not committed to raising rates. Lagarde said the Governing Council discussed a hike but unanimously chose to wait for more information.
Before the policy decision, EconoTimes reported that the euro area’s October ZEW expectations balance fell to 18.5. The Federal Reserve also held rates on Oct. 28, keeping its target range at 3.75% to 4.00%, though two members preferred a quarter-point increase. The current policy rates differ; BBH’s comparison concerns the central banks’ expected paths.
The ECB’s next monetary policy meeting is scheduled for Dec. 16-17. Lagarde said new staff projections and further inflation and economic data would inform the decision.
