Title: Another Stalemate for ECB as Key Interest Rate Remains Unchanged
The European Central Bank (ECB) has pulled another shocker in the financial world by keeping the key interest rate in the eurozone at 4.5%, as announced in Frankfurt. This decision follows a similar move by the Federal Reserve, which left its key interest rate untouched in a range between 5.25% and 5.50%. Interestingly, the latter hinted at possible interest rate cuts in 2024.
The rapid sequence of interest rate hikes by both central banks is aimed at combating the looming inflation threat. For the Federal Reserve, Decision-makers anticipate an average key interest rate of 4.6% during the upcoming year, hinting at around three rate cuts in 2024. The high inflation rate in the USA has shown a substantial decrease lately, prompting Fed Chairman Jerome Powell and his team to assess if the current rate is sufficient to keep high consumer prices in check over the long term. However, Powell pointed out that the war against inflation hasn't been fully won yet.
Likewise, the ECB has waged its own battle against inflation using a series of sharp interest rate hikes. The ECB decided not to increase interest rates further in October, as the key interest rate at which commercial banks obtain fresh funds from the central bank currently stands at 4.5%. Elevated interest rates make loans costlier, which can suppress demand and help counteract high inflation rates. Yet, these costlier loans are a burden on the overall economy as credit-financed investments become more expensive.
Economic uncertainties have paved the way for concerns about the economy as well. Many economists now believe that higher interest rates will not be increased any further. The ECB and the Fed aspire to achieve stable prices in the medium term with an inflation rate of 2%. Inflation in the eurozone has weakened significantly in November, according to Eurostat. Consumer prices were 2.4% higher than in the equivalent month last year, down from 2.9% in October. Consequently, concerns about the global economy continue to rise, with the German economy also forecasted to shrink slightly in 2023.
It's noteworthy that both the Federal Reserve and the ECB share a common goal of maintaining a medium-term inflation rate of 2%. With the ECB reserving its 4.5% rate for now, it seems both central banks are striving to strike a balance between curbing inflation and fostering economic growth.
Related Articles:
[1] "Federal Reserve’s balance sheet exceeds $9 trillion, setting record as Jerome Powell seeks to prevent financial collapse." .
[2] "ECB Policy meeting discusses future monetary policy expectations." .
[3] "ECB inaugural rate cut resulted in unintended consequences." .
[4] "Market traders expect no rate hike in 2025 as the Fed takes a break." .
[5] "ECB adjusts key interest rates, signals continued commitment to safeguarding price stability."
