The European Central Bank maintained its key policy rates, including the deposit rate at 2%, in line with a market consenus. highlighting rising risks to both economic growth and inflation. The ECB President Christine Lagarde is about to take the stage in Frankfurt to deliver her remarks on the decision and provide the outlook for the economic and monetary developments in the Euro Area. Below you will find the crucial remakrs from the conference.
Key insights from ECB's Lagarde:
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Though the incoming information has been broadly consistent with the ECB's outlook, the risk to both inflation and economic growth have risen significatnly. The Middle East developments are driving energy prices high and economic sentiment down.
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ECB will maintain data-dependant, meeting-by-meeting approach, not precommiting to a particular rate path.
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Before the war, the European economy was showing some momentum, with a resilient growth driven mainly by domestic demand and strong labour market.
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However, recent surveys indicate that the optimism is deteriorating due to the Middle East war. The growth has slowed down (form 0.2% to 0.1% QoQ), with business confidence weakening in the face of longer delivery times and rising input input prices. Real incomes went down due to the higher energy prices, discouraging consumption and investment in a longer term.
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The prolonged Middle East war and the closure of Strait of Hormuz will intensify second-round effects of energy price shock, potentially feeding into different sectors and causing persistent inflation. For now, long-term inflation expectations remain in line with ECB's 2% target. Short-term inflation will likely remain above 2%.
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"We are defiitely shifting from baseline."
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Today's rate hold decision was unanimous, but the Governing Council discussed hiking rates extensively. The main argument for hold was that hard data broadly matches ECB projections.
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President Lagarde: "Given our position, six weeks is the right time to evaluate progress; we will release the updated scenarios in June".
EURUSD is trying to recover above 1.1700 after Lagarde mentioned rate-hike discussions. Source: xStation5
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