European Central Bank freezes interest rates

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Christine Lagarde, President of the European Central Bank, has announced that interest rates will remain unchanged. /Denis Balibouse/Reuters

The European Central Bank has frozen interest rates despite steady inflation data and slowing economic activity across the Eurozone.

"The Governing Council today decided to keep the three key ECB interest rates unchanged," announced ECB President Christine Lagarde.

Following its first meeting of 2024, Lagarde said the ECB board believed any talk of cutting rates was "premature" given the uncertain economic outlook and risk of wage growth pushing inflation higher in the first quarter.

"We are determined to ensure that inflation returns to our two per cent medium-term target in a timely manner," she said.

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"Based on our current assessment, we consider that the key ECB interest rates are at levels that, maintained for a sufficiently long duration, will make a substantial contribution to this goal," she added.

The latest inflation data revealed a slight rise in the cost of living across Europe. In December, the Eurozone inflation rate was 2.9 percent, up from 2.4 percent the previous month. The number has steadily fallen from its peak of 10.6 percent in October 2022, when energy price shocks rattled Europe following the conflict in Ukraine.

"Inflation is expected to ease further over the course of this year as the effects of past energy shocks, supply bottlenecks and the post-pandemic reopening of the economy fade, and tighter monetary policy continues to weigh on demand," Lagarde said.

Lagarde says the ECB board, based at its HQ in Berlin, believe talk of cutting interest rates is premature and says freezing them is the right long term move. /Heiko Becker/Reuters

Uncertain outlook

In assessing the year ahead, the ECB pointed to several geopolitical flashpoints that could both weigh on Europe's economic growth and trigger a fresh spike in inflation.

"Russia's unjustified war against Ukraine and the tragic conflict in the Middle East are key sources of geopolitical risk. This may result in firms and households becoming less confident about the future and global trade being disrupted," Lagarde said.

"Upside risks to inflation include the heightened geopolitical tensions, especially in the Middle East, which could push energy prices and freight costs higher in the near term and hamper global trade," she added.

Leadership questions

Lagarde also responded to a survey by the International and European Public Services Organisation (IPSO) which showed staff trust in the ECB's entire senior management team was lower than a year ago, saying the bank's internal surveys demonstrated high levels of staff satisfaction.

"What keeps me going is those answers. I am extremely proud of the staff of the ECB and I am very proud and honored to lead the institution because we are driven by our mission to deliver price stability but also to serve the Europeans and we will continue doing that," she said.