Eamets: European Central Bank Left Markets Empty-Handed

At the European Central Bank council meeting held yesterday and today, it was decided to keep the interest rate on the deposit facility unchanged. It remains at 2.5%. Markets have been expecting a rate hike for some time, as the six-month euribor, which is so important for borrowers, has been hovering around 3% for some time. Such a euribor level would suggest a central bank rate of 2.75%.

The second reason for expecting a rate hike is accelerating inflation in the eurozone. As is known, the price increase in September was 3.8%, which is significantly higher than the 2% target set by the central bank. The price increase across Europe (as well as in Estonia) is driven by oil and, even more so, natural gas prices. The latter, in turn, affects energy prices, since Europe's electricity generation depends quite substantially on natural gas. In addition, gas is important for heating homes, and the weather is gradually becoming cooler.

To hope that October inflation will be significantly lower than it was in September is, to put it mildly, somewhat naive. The European Central Bank has unfortunately become accustomed to reacting to market changes with a lag and delay. Therefore, one can expect a rate hike at the next meeting, which will take place on December 17.