(Kitco News) -The gold market is holding its ground near record highs as the European Central Bank continues to hold interest rates unchanged.
In a much-anticipated move the ECB said it would leave interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility unchanged at 4.50%, 4.75% and 4.00% respectively.
The gold market is not seeing much movement in initial reaction to the latest monetary policy decision. Spot gold last traded at €2,177. an ounce, up 0.24% on the day.
Although the ECB remains reluctant to ease monetary policy now. It continues to leave the door open for easing ahead of the summer. Markets are starting to aggressively price in a rate cut in June.
The central bank said in its monetary policy statement that inflation continues to head in the right direction, but it still needs more confidence that its 2% target will be hit before it starts cutting.
“Inflation has continued to fall, led by lower food and goods price inflation. Most measures of underlying inflation are easing, wage growth is gradually moderating, and firms are absorbing part of the rise in labour costs in their profits. Financing conditions remain restrictive and the past interest rate increases continue to weigh on demand, which is helping to push down inflation. But domestic price pressures are strong and are keeping services price inflation high,” the central bank said in its monetary policy statement.
“If the Governing Council’s updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission were to further increase its confidence that inflation is converging to the target in a sustained manner, it would be appropriate to reduce the current level of monetary policy restriction,” the ECB added.
Jack Allen-Reynolds, Deputy Chief Euro-zone Economist at Capital Economics, said that he is expecting the ECB to cut rates in June.
“The ECB’s decision to update its guidance suggests that an interest rate cut at the next meeting in June is very likely,” he said in a note.
