The European Central Bank's Governing Council decided on 29 October to leave its three key interest rates unchanged. The deposit facility rate stays at 2.50%, the main refinancing operations rate at 2.65% and the marginal lending facility rate at 2.90%. The ECB notes that energy prices keep rising, creating risks of higher inflation and weaker growth, while euro area inflation reached 3.8% in September. The bank is not committing to any rate path and will decide meeting by meeting based on the data.

What it means: The decision holds the cost of money in the euro area steady, but the ECB's message is more worried than it was a few months ago. The bank sees the energy shock lasting longer and growing larger, and admits that financing conditions have already tightened since its previous meeting. For Greek businesses, Euribor, on which most floating-rate business loans and mortgages are based, stays close to current levels with no sign of a cut. Companies planning investments funded by bank loans cannot count on cheaper money in the coming months. Inflation at 3.8%, with energy up almost 19% on a year earlier, is pushing up the cost of transport, production, cooling and heating, especially in sectors such as tourism, restaurants and manufacturing. The ECB points out that wages have not yet reacted strongly, which matters for pay negotiations. If energy feeds a second round of price increases across goods and services, the bank has left the door open to a tighter stance. For planning purposes, businesses need to work with scenarios where borrowing costs stay flat or rise, and to watch the inflation data published before the next meeting in December.

Notice: For information only. Not investment advice or a recommendation to buy or sell.

Read the original on European Central Bank

Related service: Consulting

Related stories