MercoPress. South Atlantic News Agency

European Central bank keeps high interest rates unchanged; US surprised by rising inflation in March

European Central Bank held interest rates at a record high, although as usual signaling it could cut interest rates at its next meeting in June.

In a week in which the United States was surprised by an increase in inflation further delaying prospects of a soon cut in the Federal Reserve's rate cut, the European Central Bank held interest rates at a record high, although as usual signaling it could cut interest rates at its next meeting in June.

 The interest rate on the main refinancing operations will remain unchanged at 4.50%. The interest rates on the marginal lending facility and the deposit facility will remain unchanged at 4.75% and 4.00% respectively. The announcement is the fifth consecutive pause since October and was widely expected.

The bank's rate-setting council said it would wait for confirmation that rapidly receding inflation is firmly under control before deciding to cut interest rates. “Most measures of underlying inflation are easing... but domestic price pressures are strong and are keeping services price inflation high,” it said.

Major central banks including the ECB and US Federal Reserve are weighing when receding inflation will let them cut rates.

Eurozone inflation slowed more than expected in March to 2.% — not far off the ECB's target of 2%.

In its statement on Thursday, the ECB said that “past interest rate increases continue to weigh on demand, which is helping to push down inflation.” It added that once its confident that inflation has reached target levels, “it would be appropriate to reduce the current level of monetary policy restriction.”

However in the US consumer prices rose faster than expected last month, in a sign that the fight to slow inflation has stalled. Prices rose 3.5% over the 12 months to March, up from 3.2% in February, the US Labor Department said. Higher costs for fuel, housing, dining out and clothing drove the increase.

Analysts warned the lack of progress will force the US central bank to keep interest rates higher for longer than expected.

Higher interest rates help stabilize prices by making it more expensive to borrow for business expansions and other spending. In theory, that in turn slows the economy, and eases the pressures pushing up prices.

But the Federal Reserve's key interest rate is now set at the highest levels in more than two decades, in the range of 5.25%-5.5%. Forecasters had expected the bank to start lowering borrowing costs this year, reflecting the fact that the inflation rate, which tracks the pace of price rises, has fallen significantly since hitting 9.1% in 2022.

But recent economic data, including strong jobs creation figures last week, has raised doubts about how soon those cuts might come.