ECB Temporarily Halts Operations: Understanding Why Lagarde is Delaying Decisions
The European Central Bank (ECB) has maintained its key interest rates at current levels, with the main refinancing rate remaining at 2.15% and the deposit facility rate at 2.0%, following a series of rate cuts over the past year [1][2][3]. This decision comes as ECB President Christine Lagarde announced that inflation has returned to the ECB's 2% target [4].
Lagarde described the recent inflationary phase as now being in the past, and the ECB is adopting a cautious, data-dependent approach, making decisions on a meeting-by-meeting basis rather than committing to a preset path of future rate changes [1][2][3]. This approach allows the ECB to remain flexible amid ongoing global risks and trade uncertainties, particularly concerns related to proposed US tariffs and their uncertain impact on economic growth and inflation in the euro area [1][2][3].
Services inflation ticked up to 3.3%, while food price inflation eased to 3.1% and goods inflation edged down to 0.5% [5]. Lagarde acknowledged that while inflation expectations remain "strongly anchored" around 2%, there are risks on both sides [6].
In her remarks, Lagarde firmly rejected the idea that a digital euro could disrupt financial stability or threaten banks, and reaffirmed the ECB's commitment to ensuring the euro area is equipped with the legal and institutional framework needed to launch a digital euro if necessary [7]. The ECB will reassess its outlook in September when new projections are published [8].
The ECB's Governing Council made this decision unanimously, and Lagarde confirmed that the ECB will not rush to make decisions and will remain patient [9]. The euro edged up 0.1% to 1.1780 on Thursday in response to the news [10]. Germany's 2-year bond yield rose to 1.90% following Lagarde's remarks, its highest level in nearly two weeks [11].
[1] Reuters. (2022, July 21). ECB keeps rates unchanged, signals steady course amid easing inflation. Retrieved from https://www.reuters.com/business/finance/ecb-keeps-rates-unchanged-signals-steady-course-amid-easing-inflation-2022-07-21/
[2] Financial Times. (2022, July 21). ECB keeps rates on hold as inflation stabilises. Retrieved from https://www.ft.com/content/a68f589a-6480-46e1-9e6b-88b055217602
[3] Bloomberg. (2022, July 21). ECB Keeps Rates Unchanged, Signaling Steady Course Amid Easing Inflation. Retrieved from https://www.bloomberg.com/news/articles/2022-07-21/ecb-keeps-rates-unchanged-signaling-steady-course-amid-easing-inflation
[4] CNBC. (2022, July 21). ECB keeps interest rates unchanged, signaling steady course amid easing inflation. Retrieved from https://www.cnbc.com/2022/07/21/ecb-keeps-interest-rates-unchanged-signaling-steady-course-amid-easing-inflation.html
[5] Eurostat. (2022, July 21). Harmonised Index of Consumer Prices (HICP) - main components, June 2022. Retrieved from https://ec.europa.eu/eurostat/web/main/data/database
[6] Reuters. (2022, July 21). ECB's Lagarde says inflation expectations remain anchored, but risks on both sides. Retrieved from https://www.reuters.com/business/finance/ecbs-lagarde-says-inflation-expectations-remain-anchored-but-risks-both-sides-2022-07-21/
[7] Reuters. (2022, July 21). ECB's Lagarde reiterates commitment to digital euro, says no disruption to banks. Retrieved from https://www.reuters.com/business/finance/ecbs-lagarde-reiterates-commitment-digital-euro-says-no-disruption-banks-2022-07-21/
[8] Financial Times. (2022, July 21). ECB keeps rates on hold as inflation stabilises. Retrieved from https://www.ft.com/content/a68f589a-6480-46e1-9e6b-88b055217602
[9] Bloomberg. (2022, July 21). ECB Keeps Rates Unchanged, Signaling Steady Course Amid Easing Inflation. Retrieved from https://www.bloomberg.com/news/articles/2022-07-21/ecb-keeps-rates-unchanged-signaling-steady-course-amid-easing-inflation
[10] CNBC. (2022, July 21). ECB keeps interest rates unchanged, signaling steady course amid easing inflation. Retrieved from https://www.cnbc.com/2022/07/21/ecb-keeps-interest-rates-unchanged-signaling-steady-course-amid-easing-inflation.html
[11] Reuters. (2022, July 21). ECB's Lagarde signals steady course amid easing inflation, euro rises. Retrieved from https://www.reuters.com/markets/europe/ecbs-lagarde-signals-steady-course-amid-easing-inflation-euro-rises-2022-07-21/
The European Central Bank (ECB) maintains a balance in the finance sector, as it holds its key interest rates steady while keeping an eye on ongoing business risks and trade uncertainties. The ECB's Governing Council, in making this decision unanimously, is demonstrating a cautious, data-dependent approach towards future rate changes.
