The European Central Bank has kept its main interest rate at 3.75 per cent, leaving the door open to a possible September cut despite concerns that geopolitical uncertainty and rapid wage rises will keep pushing up prices.
The ECB governing council’s decision to leave its benchmark deposit rate on hold was in line with market expectations.
But investors will be listening closely to ECB president Christine Lagarde’s press conference on Thursday for signals about future rate reductions after June’s initial quarter percentage point cut.
Most economists think the ECB is likely to reduce rates at its next meeting on September 12 as long as data continues to show inflation is on track to fall to its 2 per cent target by the end of next year.
Eurozone consumer price growth has slowed from a peak of 10.6 per cent in October 2022 to 2.5 per cent in June.
Rate-setters are worried about political turmoil, especially after this month’s inconclusive election result in France raised doubts over whether a high-spending new government in the region’s second-largest economy would push up inflation.
There are also concerns that a Donald Trump victory in November’s US presidential election could contribute to inflation in Europe by sparking a trade war.
The Eurozone is already contending with wage growth of 5 per cent, as workers demand to be compensated for the worst bout of inflation for a generation, keeping inflation above 4 per cent in the labour-intensive services sector. --Copyright The Financial Times Limited 2024
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