ECB keeps interest rates on hold despite eurozone inflation fears

The European Central Bank kept interest rates on hold on Thursday for the third meeting in a row despite concerns that a modest economic recovery across the eurozone would fuel inflation. The ECB kept its key deposit rate at 2% despite annual price growth rising to 2.2% across the 20-member euro bloc in September, up from 2% in August and 1.7% a year earlier. In the 27-member EU, annual inflation was 2.6% in September, up from 2.4% in August, according to Eurostat. The ECB said its six-member governing council’s view of inflation was “broadly unchanged”. It said: “The robust labour market, solid private sector balance sheets and the governing council’s past interest rate cuts remain important sources of resilience.” The eurozone economy expanded by 0.2% in the third quarter from the previous three months, according to preliminary data from the European Commission published on Thursday. The increase was higher than the 0.1% City analysts expected, with the rise driven mainly by strong performances in Spain, which expanded by 0.6%, and a 0.5% increase in France. The ECB rate decision follows a divergence across the eurozone in prices growth, which the central bank is expected to maintain at about 2%. Cyprus kept inflation at zero, while it increased modestly to 1.1% in France and 1.8% in Italy and Greece. However, Romania reported an inflation rate of 8.6%, to add to Estonia’s 5.3% and Slovakia’s 4.6%. The ECB has said it is concerned by the high level of inflation from services, food and energy. However, it has trimmed its main deposit rate to 2% over the past year and a half – about half the rate in the UK and US. “The outlook is still uncertain, owing particularly to ongoing global trade disputes and geopolitical tensions,” the ECB added. Mark Wall, the chief economist for Europe at Deutsche Bank, said: “Where’s the smoking gun for a rate cut? Despite the US tariffs, despite all the various sources of uncertainty, the European economy continues to eke out some growth. Economic ‘resilience’ is keeping the ECB doves in check, and the policy pause on the rails.” The Bank of England is widely expected to keep its headline rate at 4% when its policymakers meet on 6 November. On Wednesday the US Federal Reserve trimmed its benchmark rate by a quarter point to a range of 3.75% to 4%, the second cut this year.