Economic Watch: Europe's central bank not poised for rate cut

FRANKFURT, Jan. 26 (Xinhua) -- The European Central Bank (ECB) on Thursday continued to keep key interest rates on hold and the ECB president gave no indication about the timing of a possible rate cut.

The three key interest rates have been left unchanged at historically high levels, with interest rates on the main refinancing operations, the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 4.5 percent, 4.75 percent and 4 percent respectively.

As the main tool used by the central bank to combat inflation, the rates which had been lifted by a total of 450 basis points since July 2022 have pushed up borrowing costs significantly and dampened demand in the euro area.

"Tight financing conditions are dampening demand, and this is helping to push down inflation," the ECB said in a statement.

The development of the inflation outlook, according to the ECB, was also broadly in line with its previous assessment.

Inflation in the euro area rose to 2.9 percent in December from 2.4 percent in November last year. Nonetheless, the underlying inflation continued to decline in December.

Even if the elevated rate of wage increases among other factors is keeping domestic price pressures high, the pace of increase has shown signs of easing.

ECB President Christine Lagarde said at a press conference here on Thursday that the central bank is not ready to cut rates any time soon.

"The consensus around the table of the Governing Council was that it was premature to discuss rate cuts," said Lagarde in reply to a question.

Meanwhile, Lagarde reiterated that the central bank will continue to closely monitor incoming data especially those on wage increases in the euro area.

The decline of underlying inflation does not seem enough to warrant an immediate rate cut for the ECB.

"It is a disinflation process in which we are. It is working. But we need to be more advanced, (and) we need to be further along in that process to be confident that inflation will be at target and sustainably so," said Lagarde.

"As long as actual inflation remains closer to 3 percent than 2 percent, the ECB will not look into possible rate cuts. It would require a severe recession or a sharp drop in longer-term inflation forecasts to clearly below 2 percent to see a rate cut in the coming months," said Carsten Brzeski, global head of Marco division of ING Research.

The ECB is set to publish its latest forecast about inflation and economic growth in the euro area in March.