BREAKING: EUR muted after ECB leaves rates unchanged

European Central Bank announced its final monetary policy decision of 2023 at 1:15 pm GMT today. ECB was expected to keep interest rates unchanged for the second meeting in a row, with the deposit rate remaining at 4.00%.

There was no surprise - ECB left key interest rates unchanged at previous levels. It was noted that inflation is likely to pick-up temporarily in near-term and the rates need to be maintained for sufficiently long time. PEPP reinvestment will continue in full during the first half of 2024. Aim is to reduce PEPP portfolio by €7.5 billion per month on average over the second half.

Headline inflation forecasts

• 2023: 5.4% vs 5.6% in previous forecast
• 2024: 2.7% vs 3.2% in previous forecast
• 2025: 2.1% vs 2.1% in previous forecast
• 2026: 1.9%

Core inflation forecasts

• 2023: 5.0% vs 5.1% in previous forecast
• 2024: 2.7% vs 2.9% in previous forecast
• 2025: 2.3% vs 2.2% in previous forecast
• 2026: 2.1%

GDP forecasts

• 2023: 0.6% vs 0.7% in previous forecast
• 2024: 0.8% vs 1.0% in previous forecast
• 2025: 1.5% vs 1.5% in previous forecast
• 2026: 1.5%

EUR moved slightly higher in a knee-jerk move, but overall reaction of the market was muted. Equity indices moved a touch lower but scale of the move was very small.

Source: xStation5