ECB holds rates steady as Lagarde’s departure overshadows decision

The European Central Bank (ECB) has kept interest rates unchanged as it weighs bond-market turmoil in France and a renewed surge in energy costs.

The bank’s October rate decision was, however, overshadowed by Christine Lagarde’s decision to step down as ECB president in February, nine months before her eight-year term expires in October 2027.

This follows months of speculation about when she would call time on her tenure in charge.

Lagarde’s February departure means French president Emmanuel Macron and other European Union leaders will be able to fill one of the bloc’s most powerful economic ⁠positions before France’s presidential elections in the spring.

It is a vote that opinion polls point ​to far-right candidate Marine Le Pen winning.

Lagarde’s tenure has been shaped by the worst pandemic in a century, the bloodiest war in Europe since 1945, the biggest inflation shock in a generation and a trade war with the US.

Earlier this year, Lagarde (70) admitted that she had believed she would only serve in Frankfurt for five years rather than eight when she agreed with Macron to do the job.

She has been linked to the position of chair of the World Economic Forum.

The Dutch government is backing former Dutch central bank governor Klaas Knot to succeed her, while Spain is supporting Pablo Hernández de Cos, general manager of the Bank for International Settlements and former governor of the Bank of Spain.

ECB executive board member Isabel Schnabel will leave her role one year early in January to take a senior position at the IMF. ECB chief economist Philip Lane’s term will expire in May.

Lagarde’s announcement overshadowed Frankfurt’s decision to keep interest rates unchanged, a move that had been widely expected.

Policymakers kept the bank’s main deposit rate at 2.5 per cent.

The bank has raised rates twice in the last five months as it combats the surge in inflation from energy prices.

While Lagarde has repeatedly insisted the bank is not on a predetermined rate path, markets believe another hike as soon as next month is now a distinct possibility given the renewed pressure on energy prices.

Policymakers are battling the sudden increase in consumer-price inflation, which is now close to 4 per cent, double the bank’s target rate of 2 per cent.

Growth across the euro zone’s private sector has also slowed to its weakest pace in ‌four months amid the upsurge in energy costs.

Government borrowing costs in France have jumped in recent weeks on investor concerns about the country’s ability to repair its finances, while waves of street protests have raised the political temperature ahead of a presidential election ⁠in the spring.