ECB holds rates steady despite rising inflation

The European Central Bank held interest rates steady at its meeting on Thursday, in line with market expectations, CNBC reports. Its key deposit rate remains at 2.5% following a 25-basis-point increase in September.

In its statement, the central bank maintained its assessment of the main risks, acknowledging that “The increased magnitude and duration of the energy shock, as well as the implications for indirect and second-round effects, are likely to drive up inflation and lower growth.” Inflation in the euro zone accelerated in September to its highest level in three years, CNBC notes.

The ECB also stated that financing conditions had tightened since its previous meeting. That prompted investors to scale back expectations for further monetary tightening.

Following the decision, the euro extended its decline, weakening 0.4% to a fresh 17-month low. Eurozone government bonds extended their gains. The Stoxx 600 stock index held on to its gains, trading about 1% higher.

The ECB’s decision to hold rates steady came a day after the Fed took the same step. After raising rates in September, the U.S. central bank paused its monetary tightening. Nevertheless, markets are pricing in another increase in U.S. borrowing costs as soon as December: traders put the probability of a hike at the Fed’s next meeting at 83%, according to data from CME FedWatch.