ECB leave interest rates unchanged at 4.25%
02 October 2008
Conforming to market expectations, the European Central Bank elected to keep interest rates steady at 4.25% today, with financial markets bracing themselves for Central Bank President Jean-Claude Trichet’s interpretation of the intensifying global financial turmoil in the accompanying news conference at 1.30pm.
Since last month’s policy meeting, gloomy economic data and a marked rise in unemployment have suggested a Eurozone recession is becoming increasingly likely, while inflationary fears have eased by further declines in oil and commodity prices. However, the Governing Council has made it clear that it is not about to be deflected from its tough stance on inflation or panicked into easing interest rates anytime soon. Having hit a record 4.0%y/y in June and July, inflation fell for a second consecutive month in September to 3.6%, but is still considerably above the Central Bank’s target of just below 2.0%. Policymakers will also be increasingly wary of any second-round effects such as over generous wage increases and over the top price rises as they create the threat of a damaging wage-price spiral spreading through the economy.