European Central Bank Keeps Interest Rates Unchanged

The European Central Bank (ECB) announced its eagerly awaited interest rate decision and decided to keep its three key policy rates unchanged.

In line with market expectations, the European Central Bank (ECB) kept the deposit facility rate at 2.50 percent, the main refinancing operations rate at 2.65 percent, and the marginal lending facility rate at 2.90 percent. The bank had raised policy rates by 25 basis points last month and, similar to the Fed, paused at the meeting following the rate hike.

The bank's statement noted that energy prices continue to rise, posing upward risks to the inflation outlook and downward risks to the growth outlook. Pointing out that the full effects of the energy shock have not yet materialized, it was noted that core inflation has generally remained stable so far and no significant response has been observed in wages yet.

Drawing attention to the tightening of financing conditions since the last Governing Council meeting, the statement expressed that this situation is expected to put pressure on inflation and economic growth. The ECB emphasized its determination to set monetary policy in a way that ensures inflation stabilizes at the 2 percent target over the medium term.

Stating that it is in a position to manage developments amid the current high uncertainty environment, the bank announced that it will maintain a data-dependent and meeting-by-meeting approach in its monetary policy decisions. It was noted that interest rate decisions will be made taking into account the inflation outlook, risks, economic and financial data, core inflation dynamics, and the strength of monetary policy transmission, while reiterating that there is no pre-commitment regarding the future rate path.