ECB Holds Interest Rates Steady, Flagging Risks From Rising Energy Prices

The Governing Council of the European Central Bank (ECB), which sets monetary policy for the eurozone, decided at its meeting in Frankfurt to leave interest rates unchanged. The decision affects borrowing and saving costs across eurozone countries, including Latvia, and shows how the bank's leadership assesses the outlook for inflation and economic growth.

Rate levels

The overnight deposit facility rate stays at 2.5%, the main refinancing operations rate at 2.65%, and the overnight lending facility rate at 2.9%. The deposit facility rate is the one the Council uses to signal the direction of its monetary policy stance. The current rates have been in force since 16 September this year, when the ECB raised them by 0.25 percentage points.

The Council's assessment

The statement published after the meeting says energy prices continued to rise, creating upside risks to the inflation outlook and downside risks to the growth outlook. The Council notes that the full impact of the energy shock is still unfolding, but underlying inflation remains broadly stable for now, and there is no significant wage response at this stage.

However, if the energy shock grows larger or lasts longer, it would most likely push inflation higher and slow growth. Financing conditions have tightened since the previous meeting, which is likely to weigh on both inflation and growth. The Council is committed to ensuring that inflation stabilises at its 2% target over the medium term.

Approach going forward

The Council says it remains well placed to navigate the current heightened uncertainty. It will keep deciding on the appropriate policy stance meeting by meeting, based on data. Its rate decisions will depend on the assessment of the inflation outlook and the risks to it, taking into account incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission. The Council does not pre-commit to any particular rate path.

According to Eurostat, the European Union's statistics office, annual inflation in the eurozone was 3.8% in September, compared with 3.2% in August.