ECB keeps December rate hike on the table as inflation risks mount
TLT•The ECB left interest rates unchanged but kept a December hike in view, warning that rising energy prices pose upside risks to inflation and downside risks to growth. President Christine Lagarde said data over the coming six weeks would help determine whether a hike is warranted.
1. Rate decision and outlook
The European Central Bank held rates steady on Thursday, as expected, while warning that high and rising energy costs were increasing inflation risks. It has raised rates twice this year and said the scale and duration of the energy shock could lift inflation and weigh on growth.
2. Decision hinges on data
Lagarde said underlying inflation had remained broadly stable and wages had not shown a material response to higher prices. She said incoming information before the ECB’s final meeting of the year would help establish whether conditions warrant a hike, adding that the direction would be clear if the risks were confirmed.
3. Borrowing costs and France
The ECB said financing conditions had tightened since its previous meeting, likely weighing on inflation and growth. France was paying a 155-basis-point premium over Germany to borrow for 10 years. Lagarde said the ECB had tools to respond if disorderly market movements threatened the transmission of monetary policy.
