ECB keeps rates unchanged as energy shock clouds inflation and growth

Rates on hold, with a warning on energy

The European Central Bank left its three key interest rates alone on October 29, with the deposit facility at 2.50%, the main refinancing rate at 2.65% and the marginal lending rate at 2.90%.

The Governing Council built its message around energy. Costs in that sector keep climbing, which it treats as an upward risk for inflation and a downward risk for growth. It expects a larger and longer shock, plus indirect and second-round effects, to push inflation higher and slow the economy.

So far the damage looks contained. Underlying inflation has held broadly steady and pay has not reacted in any material way. Credit has become more expensive since the previous meeting, though, and the Council expects that to weigh on both prices and activity.

No promise on the next move

Policymakers repeated that they will decide one meeting at a time, guided by incoming data, and that they are not committing in advance to any path. The target stays at 2% over the medium term.

The Transmission Protection Instrument remains available if disorderly moves threaten policy transmission across euro area countries. Holdings under the APP and PEPP continue to shrink because maturing principal is no longer reinvested.

What euro rate traders watch

The statement places two risks side by side: higher inflation and weaker growth. Traders of euro rate futures usually focus on which of the two the Council stresses, because that balance shapes expectations for the deposit rate.

Energy data and wage figures are the obvious inputs from here, since the Council named both as tests for second-round effects.