The European Central Bank (ECB) and the Bank of England (BOE), the central bank of the United Kingdom, both left interest rates unchanged on the 5th (local time).
The ECB held a monetary policy meeting in Frankfurt, Germany, on this day and decided to keep the deposit facility rate (2.00% per annum), the main refinancing rate (2.15%), and the marginal lending facility rate (2.40%) all unchanged.
This is in line with the results of a survey of economists conducted by Bloomberg News. Since June 2024, the ECB has cut its policy rate by a total of 2.00 percentage points over eight moves in one year and has since kept it on hold over five consecutive meetings including this one.
Market participants expect the ECB to keep its policy rate unchanged throughout this year.
The ECB stated that "the latest assessment has repeatedly confirmed that inflation will stabilize at the 2% target over the medium term," and noted that low unemployment, increased public spending in defense and infrastructure, and the lagged effects of past rate cuts are supporting economic growth.
ECB President Christine Lagarde said at a press conference on this day that the strength of the euro could push inflation lower than expected and identified it as a source of uncertainty for prices. However, she assessed that the risks to the inflation outlook are balanced.
Last year, the eurozone’s economic growth rate was provisionally estimated at 1.5%. The ECB forecasts this year’s economic growth at 1.2% and the consumer price inflation rate at 1.9%.
The BOE also decided at its Monetary Policy Committee (MPC) meeting on this day to keep the Bank Rate at 3.75% per annum.
Of the nine members of the MPC, five including BOE Governor Andrew Bailey supported holding the rate, while four members argued for a 0.25 percentage point cut to 3.5%. The market had initially expected seven votes for a hold, so the decision turned out to be more dovish than anticipated.
The BOE has cut the Bank Rate six times since August last year.
In December last year, the United Kingdom’s consumer price index (CPI) inflation rate was 3.4%, significantly above the BOE’s 2% target.
Governor Bailey said in a statement, "We decided to hold the rate today because we must prevent the inflation rate from rising," adding, "If all goes well, there will be an opportunity for further cuts in the Bank Rate this year." In its overall statement, the BOE also said that while the CPI inflation rate is above the 2% target, it is expected to approach the target in April.
Governor Bailey did not specify the timing of the next rate cut, but as more members than expected voted for a cut on this day, the market is leaning toward the prospect of rate reductions.
Reuters reported that interest rate futures are now pricing in a 0.50 percentage point decline in the BOE Bank Rate by year-end, larger than the 0.35 percentage point cut priced in before the BOE announcement.
On this day the BOE also revised its forecast for the United Kingdom’s gross domestic product (GDP) growth this year down to 0.9%, from 1.2% in its November projection last year. It lowered next year’s growth forecast as well, to 1.5% from 1.6%.
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
