ECB keeps rates unchanged as economy holds up for now

The European Central Bank kept interest rates unchanged at 2% for the third meeting in a row on Thursday and repeated that policy was in a “good place” as economic risks recede and the euro zone shows continued resilience in the face of uncertainty.

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The ECB cut rates by a combined 2 percentage points in the year to June but has since kept to the sidelines, and a sanguine assessment from its President Christine Lagarde on Thursday suggested it was in no hurry to change policy.

She argued that Europe's trade deal with the United States, the Gaza ceasefire and Thursday's agreement between US President Donald Trump and China's Xi Jinping to trim tariffs had all mitigated downside risks to growth.

“From a monetary policy point of view, we are in a good place,” Lagarde told a press conference. “Is it a fixed good place? No. But we will do whatever is needed to make sure that we stay in a good place.”

While growth across the 20 countries that use the euro is not spectacular, Lagarde said she would not complain about the currency bloc’s 0.2% expansion rate in the third quarter, which beat both market and ECB projections.

But while growth risks have abated, she said the same could not be said for inflation, which the ECB expects to undershoot the target next year.

“I think on that front, it’s a more balanced picture,” Lagarde said.

Financial investors did not materially alter their view on the policy outlook and still see a 40% to 50% chance of one last rate cut by the middle of next year.

“We do not expect rate changes from the ECB for a long time, though there are still many risks to this view,” Nordea economist Jan von Gerich said. “Also today’s message further illustrated that the ECB is nowhere near any rate changes.”