BRUSSELS/FRANKFURT/PARIS (dpa-AFX) - The European Central Bank left its key interest rate unchanged for the fourth policy session in a row and raised the growth forecasts for the euro area citing support from domestic demand, but the bank also lifted the inflation projection for next year as policymakers expect services inflation to ease more slowly than expected earlier.
The Governing Council, led by ECB President Christine Lagarde, decided to hold the benchmark interest rate - the deposit rate, steady at 2 percent on Thursday. The refinancing rate was left unchanged at 2.15 percent and the marginal lending rate at 2.40 percent. The decision was in line with economists' expectations.
Previously, the Eurozone interest rates were revised in June, when they were lowered by a quarter basis point. The bank had trimmed interest rates by the same volume in every rate-setting session since September last year.
'The Governing Council is determined to ensure that inflation stabilizes at its 2 percent target in the medium term,' the ECB reiterated. 'It will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance.'
In its updated projections, the ECB staff raised the Eurozone inflation forecasts for next year as they expect services inflation to decline more slowly.
Headline inflation forecast for this year was retained at 2.1 percent, while the outlook for next year was lifted to 1.9 percent from 1.7 percent. The projection for 2027 was trimmed to 1.8 percent from 1.9 percent. Inflation is expected to average 2.0 percent in 2028.
Core inflation, which excludes energy and food, is expected to average 2.4 percent this year, which is the same as the September projection. The core inflation outlook for next year was raised to 2.2 percent from 1.9 percent. The outlook for 2027 was lifted to 1.9 percent from 1.8 percent. Core price growth is expected to average 2.0 percent in 2028.
The ECB staff also lifted the euro area growth projections citing a resilient domestic demand. The growth forecast for this year was raised to 1.4 percent from 1.2 percent and that for next year was boosted to 1.2 percent from 1.0 percent. The outlook for 2027 was nudged higher to 1.4 percent from 1.3 percent and the single currency economy is expected to expand at the same pace in the year after.
'The challenging environment for global trade is likely to remain a drag on growth in the euro area this year and next,' Lagarde said in her introductory statement. The central bank chief stressed on 'the urgent need to strengthen the euro area and its economy in the present geopolitical context'.
ING economist Carsten Brzeski said keeping interest rates unchanged for more than six months is sending a strong signal that there must be a severe downward shift in inflation and growth outlook to get the ECB into cutting mode again.
'In fact, the ECB's so-called 'good place' is simply a neutral monetary policy stance,' the economist added.
Commerzbank continues to expect key interest rates to remain unchanged. The bank's chief economist Jorg Kramer said, 'This is because governments are heavily indebted, and ECB Governing Council members are therefore very cautious about raising interest rates.'
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