European Central Bank Keeps Rates on Hold for First Time in Over a Year

The European Central Bank held interest rates steady on Thursday for the first time in over a year as policymakers moved into their next phase of fighting inflation.

Officials have shifted their focus to how long they will need to maintain high interest rates in order to push inflation all the way down to the central bank’s target. The bank, which sets rates for the 20 countries that use the euro, kept the deposit rate at 4 percent, a record high.

“Inflation is still expected to stay too high for too long, and domestic price pressures remain strong,” the central bank said in a statement. “At the same time, inflation dropped markedly” last month and some measures of inflation, which would indicate persistence, have eased, the statement said.

The decision to hold interest rates was telegraphed last month when, after their 10th consecutive increase, policymakers signaled they might be done. The annual rate of inflation in the eurozone dropped to 4.3 percent in September, from a peak of 10.6 a year ago. But the rate isn’t forecast to return to the central bank’s 2 percent target until the third quarter of 2025, the central bank’s staff projected last month.

Since July 2022, the European Central Bank has enforced its most aggressive bout of monetary tightening to prevent high inflation taking hold, which was triggered by a surge in energy prices last year. Interest rates were raised from below zero to the highest in the central bank’s two-decade history, and bond-buying programs introduced to stimulate the economy have been shrunk.

This policy stance is starting to restrain economic growth. Earlier this week, the central bank said that demand for loans by firms and households decreased strongly in the third quarter of this year, and more so than initially expected. Separate data published this week showed that business activity in the bloc contracted in October as new orders declined and companies cut jobs.

Past rate increases “continue to be transmitted forcefully into financing conditions,” the bank said. “This is increasingly dampening demand and thereby helps push down inflation.”

The bank said that if interest rates stay at their current levels for “a sufficiently long duration” inflation should return to target.

This month’s meeting was held in Athens, just days after the country’s debt was given an investment grade rating by S&P, ending a 13-year period of being classed as junk bonds.

Once a year the central bank hosts its governing council meeting in a different country of the eurozone. This year, it has coincided with a turnaround of the Greek economy, where unemployment is the lowest in over a decade and the economy has grown strongly in recent years. “Greece has made an impressive comeback from the pandemic,” Christine Lagarde, the president of the European Central Bank, said on Wednesday evening.