Everything stays the same. Those who pay mortgages breathe a little easier. The European Central Bank (ECB) decided today in its monetary policy meeting not to touch the price of money. It is the first time it has occurred after ten consecutive increases. Interest rates remain at 4.5% (or 4% if the deposit facility is considered), which remains in historical and statistical terms the highest level since the birth of the euro. The European monetary authority has accumulated increases of 450 basis points in just over a year, an unprecedented bullish cycle that has now reached pause mode.
The statement said that “inflation is still expected to remain too high for too long and domestic inflationary pressures to remain strong. At the same time, inflation fell sharply in September, also due to strong base effects, and most indicators of core inflation have continued to decline.”
The decision to stop the increases is also motivated by the fear of stifling the eurozone economy too much, which is already experiencing its own difficulties due to the rise in credit prices. The ECB considers that “the previous increases in interest rates agreed by the Governing Council continue to be strongly transmitted to financing conditions, which is increasingly slowing down demand and thereby helping to reduce inflation.”
Proof that the Eurozone runs the risk of flirting with a possible recession is that this week it became known that private activity in all of the 20 countries that have the single currency is suffering the largest contraction in 35 months. This is what appears from the Purchasing Managers’ Indices (PMI) this Tuesday. Specifically, the flash composite PMI for October has fallen to 46.5 points from 47.2 in September. To understand this indicator you have to know that a reading above 50 implies expansion and a reading below implies retracement. Therefore, the latest reference shows that the euro zone contracts for the fifth consecutive month
In fact, the financial entity Ebury considers it very likely that the next rate movement will be a cut, in line with what the markets indicate that they now believe that the cycle of increases has ended, and assign less than a 10% implicit probability to another rate hike in the coming months. Nomura analysts also call for caution and that it is “too early to claim victory” regarding inflation and that for this we will have to wait for data from the spring of 2024.
In September the consumer price index (CPI) for services in the eurozone fell to 4.7% year-on-year from 5.5% in August. The general CPI stood at 4.3% year-on-year last month, according to Eurostat, still well above the European Central Bank’s target of around 2%.
