ECB holds interest rates steady as energy shock threatens inflation and growth

The European Central Bank (ECB) kept its three key interest rates unchanged on Thursday, as rising energy prices threaten to push inflation higher and weaken economic growth, hours after President Christine Lagarde announced she would step down before the end of her term. The decision leaves the ECB’s deposit facility rate at 2. 50 per cent , its main refinancing rate at 2. 65 per cent and its marginal lending facility rate at 2. 90 per cent, following September’s rate increase. The Governing Council said the energy shock, driven by the conflict in the Middle East, was creating risks in both directions for the euro area economy, with higher prices threatening to fuel inflation while tighter financing conditions could weigh on economic activity. “Energy prices have continued to rise, posing upside risks to the inflation outlook and downside risks to the growth outlook,” the ECB said.

The bank added that the full effects of the energy shock were still unfolding, although underlying inflation had remained broadly stable and wages had not yet shown a significant response. However, it warned that the shock’s growing magnitude and duration, together with possible indirect effects and a second round of price and wage increases, were likely to push inflation higher and reduce growth. Financing conditions have also tightened since the Governing Council’s previous meeting, a development the ECB expects to weigh on both inflation and economic activity. The central bank reiterated its commitment to bringing inflation to its 2 per cent medium-term target , while stressing that its decisions would depend on incoming economic and financial data. “The Governing Council remains well positioned to navigate the current elevated uncertainty,” it said, adding that monetary policy would be…