The European Central Bank and the Bank of England kept their benchmark interest rates unchanged, as the Middle East war added uncertainty to energy prices and inflation while concerns about slowing growth also mounted.
According to Yonhap on April 30, the ECB held its deposit rate at 2.00%, its main refinancing rate at 2.15% and its marginal lending facility rate at 2.40% after a policy meeting that day (local time). The ECB said recent information broadly matched its previous assessment of the inflation outlook, but that “upside risks to inflation and downside risks to economic growth have increased.”
Eurozone consumer inflation in April rose to 3.0% from 2.6% a month earlier. In contrast, eurozone economic growth in the first quarter was just 0.1% from the previous quarter, heightening concerns about stagflation.
The ECB said the war’s impact on inflation and economic activity would depend on the size and duration of the energy price shock, warning that a longer conflict and sustained high energy prices could weigh more heavily on both prices and growth.
Reuters reported that some in the market expect the ECB could raise the deposit rate three times over the next 12 months, to 2.75%.
Britain’s central bank also held rates steady the same day, keeping its benchmark rate at 3.75%. Eight of the Bank of England’s nine Monetary Policy Committee members backed no change, while one favored a 0.25 percentage-point increase to 4.00%.
Britain’s consumer inflation rate stands at 3.3%, well above the central bank’s 2% target. The Bank of England said the Middle East conflict has made the outlook for global energy prices “highly uncertain,” and it is ready to take whatever steps are needed to meet its inflation goal.
The bank outlined three scenarios depending on the severity of the energy price shock. In the worst case, inflation could rise to 6.2% in early next year, which could require strong monetary tightening.
Gov. Andrew Bailey called the decision to hold rates “reasonable” given the unpredictability of economic conditions and the situation in the Middle East, and said the bank would watch developments closely.
* This article has been translated by AI.
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