No surprise: rates stuck at least for a while. After ten consecutive upward adjustments and an economy that risks slipping into recession, the European Central Bank decided to keep the unchanged interest rates to the record level achieved. In detail, the interest rate on main refinancing operations and the interest rates on marginal refinancing operations and on deposits at the central bank will remain unchanged at 4,50%, 4,75% and 4% respectively. The difficult part will be deciding what signals to send regarding the next moves.
When will the ECB start cutting interest rates?
Already last September, with the increase of 25 basis points (4% on deposit accounts), there was the feeling of having reached a suitable rate level to face a period of long stability. But the ECB is not yet finished in the fight against inflation. “The Governing Council – we read – is determined to ensure that inflation returns promptly to its medium-term target of 2%. Based on its current assessment, the Governing Council considers that the ECB's key interest rates are at levels that, if maintained for a sufficiently long period, will contribute substantially to the achievement of this objective." In this sense, the question becomes: how long will the economic restriction last? A difficult response, given the drop in inflation to 4,3% - which fell more than expected compared to 5,2% in August and 9,9% a year earlier - and the target of 2%. In all this theeconomy it turns out even more weakened conflict in the Middle East which has reignited tension over the cost of energy and the consequent risks to the cost of living. Then there is always the specter of a potential economic recession as the effect of an overly restrictive monetary policy.
The impact on stock markets
News that doesn't particularly warm up the stock markets: the European indices remain in red even if they are attempting a rebound. Milano (-0,02%), Paris (-0,79%), worse Frankfurt which drops 1,42%. The spread BTP-Bund remains above the threshold of 200 basis points (201) while the 10-year BTP rates are around 4,9%. The focus will be on Christine Lagarde's press conference at 14,45pm to understand what Frankfurt's vision is.
