European Central Bank leaves key interest rates unchanged as inflation drops

Oct. 26 (UPI) -- The European Central Bank's Governing Council Thursday decided to leave three key interest rates unchanged as inflation "dropped markedly" in September to 4.3%.

The key ECB interest rates -- refinance, lending and deposit -- for now will remain unchanged at 4.50%, 4.75% and 4% respectively, the ECB said.

Despite the inflation decline in September, the ECB said inflation is still expected to stay too high for too long and domestic inflationary pressures remain strong.

"The Governing Council is determined to ensure that inflation returns to its 2% medium-term target in a timely manner," it said. "Based on its current assessment, the Governing Council considers that the key ECB interest rates are at levels that, maintained for a sufficiently long duration, will make a substantial contribution to this goal."

The ECB Governing Council said past interest rate hikes "continue to be transmitted forcefully into financing conditions" and that is increasingly dampening demand, helping to push down inflation.

In a joint press conference statement ECB President Christine Lagarde and Vice-President Luis de Guindos said that "the euro area economy remains weak" and was likely to remain that way for the rest of the year.

"Recent information suggests that manufacturing output has continued to fall. Subdued foreign demand and tighter financing conditions are increasingly weighing on investment and consumer spending. The services sector is also weakening further," they said.

They added that as inflation continues to fall and household real incomes recover, demand should increase and the European economy "should strengthen over the coming years.

Looking ahead, Lagarde and de Guindos said future ECB decisions will ensure that key interest rates will be set "at sufficiently restrictive levels" for as long as needed to achieve a timely return to the 2% medium-term inflation target.