European Central Bank leaves key interest rate at 3.75%; expect signs of inflation under control

The European Central Bank (ECB) left its benchmark interest rate unchanged on Thursday as its rate-setting council and President Christine Lagarde take their time to ensure persistent inflation is firmly under control before cutting rates again.

The decision leaves the deposit rate at 3.75%, where it remained after a single quarter-point cut at the previous meeting on June 6.

“Local price pressures remain elevated, services inflation is high and headline inflation is likely to remain above target well into next year,” the bank said in a statement accompanying the decision.

That means homebuyers and businesses hoping for lower interest rates in Europe will have to wait at least until the bank’s September meeting to get more affordable credit, and may even have to wait longer.

For now, the ECB’s stance resembles that of the US Federal Reserve, which is expected to hold off on cutting rates at its next meeting on July 30-31, although the Fed appears closer to cutting rates than the ECB after that meeting.

The ECB, the Fed, the Bank of England and other central banks in developed countries have sharply raised rates to quell the surge in inflation that followed Russia’s invasion of Ukraine and the end of the pandemic.

High rates make borrowing, spending, and investing more expensive, which reduces demand for goods and, historically, tends to raise consumer prices.

Inflation in the eurozone has fallen from a peak of 11.6% in October 2022 to 2.5% in June, slowly approaching the ECB’s 2% target, which is considered best for the economy. But that has become difficult lately. Inflation has remained at 2-3% for months.