FRANKFURT, Germany (AP) 鈥� The European Central Bank kept its key interest rate at a record high Thursday and said it will keep them there as long as needed to , signaling little as expectations grow that it will start cutting borrowing costs next year to support the shrinking economy.
It follows similar decisions this week by the , and Swiss National Bank to leave rates unchanged. The Fed also signaled it could make three interest rate cuts next year.
The ECB gave away little about its future moves in a statement after keeping its benchmark rate at 4% but noted that inflation was 鈥渓ikely to pick up again temporarily in the near term.鈥�
In a signal that cuts may not be around the corner, bank President Christine Lagarde said future decisions will ensure that rates 鈥渨ill be set at sufficiently restrictive levels for as long as necessary.鈥� She spoke hoarsely at a news conferences, saying she was recovering from COVID-19 but was no longer contagious.
Central banks worldwide drastically raised rates to contain inflation that broke out in the wake of the COVID-19 pandemic and . They鈥檙e now trying to balance keeping rates high for long enough to ensure inflation is contained against the risk that higher borrowing costs could .
more than expected in the 20 European Union countries that use the euro currency, to 2.4% in November from a peak of 10.6% in October 2022. That鈥檚 not too far from the ECB鈥檚 goal of 2% considered best for the economy.
That has led analysts to predict the ECB will cut rates next year, though the timing is not certain and forecasts range from March to September for the move. The bank said it will make decisions based on the latest information about how the economy is doing.
While inflation is down following a record pace of rate hikes, because the cost of borrowing has surged for things like home purchases and business investment in new offices and factory equipment. The eurozone saw economic output shrink 0.1% in the July-to-September quarter.
Meanwhile, wages are still catching up to higher prices in shops, leaving European consumers less than euphoric even as European city centers deck themselves in Christmas lights.
In Paris, travel agent Amel Zemani says Christmas shopping will have to wait for the post-holiday sales.
鈥淚 can鈥檛 go shopping this year, I can鈥檛 afford Christmas gifts for the kids," she said. 鈥淲hat do they want? They want sneakers. I鈥檓 waiting for the sales to give them the gifts then. And they understand.鈥�
Steven Ekerovich, an American photographer living in the French capital, said that while "Paris was lagging easily 50% behind the rest of the major cosmopolitan cities in pricing, it鈥檚 catching up fast. Rents, food, clothing. So, you have got to be careful now.鈥�
Europe's falling inflation and mean the ECB may be the first major central bank to pivot to rate cuts, said Frederik Ducrozet, head of macroeconomic research at Pictet Wealth Management.
But the expectations vary, from Deutsche Bank鈥檚 prediction that March is a possibility to Pictet鈥檚 view that June is most likely.
Expectations of a March rate cut may be 鈥渆xcessive euphoria,鈥� said Holger Schmieding, chief economist at Berenberg bank, cautioning that inflation could rise again before falling further. He doesn't see a rate cut before September.
Higher interest rates combat inflation by increasing the cost of borrowing throughout the economy, from bank loans and lines of credit for businesses to mortgages and credit cards. That makes it more expensive to borrow to buy things or invest, lowering demand for goods and easing prices.
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AP video journalist Alex Turnbull in Paris contributed.
David Mchugh, The Associated Press
