ECB to keep tightening until inflation shows clear signs of moving closer to 2% target

BCE Largarde Atenas Octubre2023

Link Securities| According to the minutes of the October meeting of the European Central Bank (ECB) Governing Council, at which the institution kept interest rates unchanged after 15 months of consecutive increases, its members opted for a more cautious “wait and see” stance, influenced by the gradual easing of inflationary pressures and concerns about an imminent recession. This decision follows a series of ten consecutive rate hikes since July 2022, which raised the main refinancing rate to a 22-year high of 4.5% and the deposit facility rate to an all-time high of 4%.

In the minutes the Council members showed their determination to ensure that inflation returns to its 2% target over the medium term, saying it will keep interest rates at these high levels for a sufficiently prolonged period until it achieves that goal.

Assessment: The minutes did not provide anything that was not already known. The ECB is beginning to be concerned about the region’s economic weakness which, together with the recent good performance of inflation, allowed it not to raise its benchmark rate again at the end-October meeting. However, its intention is to keep eurozone interest rates at restrictive levels until inflation shows clear signs of moving closer to the 2% target. The region’s bonds, which have experienced a strong price rally in recent weeks, gave up some ground, leading to a slight rebound in yields.

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