Lagarde gestures as she addresses a press conference after the ECB Governing Council meeting in Athens on Thursday. – AFPpicThe European Central Bank left interest rates unchanged as expected on Thursday , ending an unprecedented streak of 10 consecutive rate increases, even as it insisted that rising market talk of rate cuts was premature.
Repeating the bank’s guidance from six weeks ago, ECB president Christine Lagarde hinted at steady policy ahead but provided little guidance otherwise and even kept a further rise in rates on the table as a distant possibility. Lagarde argued that the eurozone economy was weak, possibly weaker than predicted last month, but that price pressures remained strong and could be aggravated further if the Middle East conflict drives energy costs up again.“Even having a discussion on a cut is totally, totally premature,” she said.Markets now see a high chance the ECB will start cutting interest rates in April and fully price in a move by June, followed by two other cuts before the end of the year.
The euro initially dropped against the US dollar before paring some of that decline to last trade down 0.3% at US$1.0530. Eurozone bond yields fell, as did the spread between Italian and German 10-year bond yields. “PMIs and money supply data suggest that the inevitable recession started in the summer,” AFS Group senior analyst Arne Petimezas said. “But the ECB, which should have known better with its tower full of economists, continued to tighten.”
“The economy is likely to remain weak for the remainder of this year,” said Lagarde. “But as inflation falls further, household real incomes recover and the demand for euro area exports picks up, the economy should strengthen over the coming years.”
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