FRANKFURT - The European Central Bank (ECB) left its key interest rate at a record high on Thursday and noted that underlying inflation had continued to fall, also thanks to high borrowing costs.
However, the bank reiterated its key rate would stay at at 4% for some time, even as investors continue to bet on hefty rate cuts this year.
The euro was little changed, flat against the dollar at $1.0887.
“The incoming information has broadly confirmed our previous assessment of the medium-term inflation outlook,” ECB president Christine Lagarde said in a statement.
“Aside from an energy-related upward base effect on headline inflation, the declining trend in underlying inflation has continued, and our past interest rate increases keep being transmitted forcefully into financing conditions.
“Tight financing conditions are dampening demand, and this is helping to push down inflation. We are determined to ensure that inflation returns to our 2% medium-term target in a timely manner.
“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.”
“The ECB kept interest rates on hold as expected, but it’s all about what happens in the coming months,” said Neil Birrell, chief investment officer ay Premier Miton Investors in the UK.
“Will hopes of a cut in the spring be met? It would seem not,” he added.