The European Central Bank maintained its key interest rate on 30th October, because inflation is under containment, and European commercial activities are coping with the effects of increased U.S tariffs than initially expected.

The deposit rate by the bank has remained at 2% in the three consecutive meetings. The bank has gone into a holding pattern after reducing the rate to 4% to eliminate the double-digit inflation due to the pandemic recovery and the increase in energy prices.

The slight improvement in the view has taken off the burden to implement another cut, despite the fact that growth is low.

Although the central bank has fulfilled its mandate of ensuring inflation is controlled, the growth issues have taken a wider perspective on the economic competitiveness of Europe in other aspects that cannot be controlled by the ECB. Total reforms have been advocated to be carried out to cut back on bureaucracy, invest more, and become more innovative, as a report by former ECB head Mario Draghi has suggested that Europe is facing more competition with China and higher tariffs in the U.S. under President Donald Trump.

The bank President, Christine Lagarde, said at her post-meeting news conference, “The economy has managed to perform well in the challenging global environment. The future remains unclear, however, mainly because of the persistent trade wrangles between countries in the world and geopolitical tensions.”

She mentioned that more decisions will be made on a meeting-to-meeting basis and will be made in accordance with the most current available data.

“We are financially in a good position,” she said, with regard to monetary policy. “Is it a fixed good place? No, we will do anything to ensure that we remain in a good place.”

The meeting on Thursday was in Florence, Italy, one of the occasional meetings in which the bank was not situated in its Frankfurt headquarters, to emphasize the fact that it was a pan-European institution.

Surveys of European business activity have indicated a slight recovery at the beginning of the fourth quarter in spite of the imposition of a 15% tariff or an import tax on European goods by U.S. President Donald Trump. It is after an increase of 0.2 percent in the third quarter compared to the previous quarter, and 1.3 percent compared to the previous quarter.

Since the rate of inflation is controlled at 2.2% in September, slightly higher than the bank rate of 2% target, the analysts indicate that the central bank of the 20 economies that use the euro might not increase or reduce the rates again until sometime next year. Reduced rates are conducive to growth, whereas increased rates are applied to curb inflation.

The stand-pat strategy of the ECB is a stark contrast to the U.S. Federal Reserve, which reduced its rates by 0.25 percentage points on Wednesday and may further reduce them in December to aid growth, although US inflation is very high. The Fed Chair Jerome Powell remarked that another reduction is not a given.

Official figures released on Thursday revealed that the economy of Europe had increased by a humble 0.2 percent in the third quarter. Uppsala Growth was restrained in the 20-country zone of euro users by stronger U.S. tariffs and poor results in Germany and Italy, both of which are barely clearing a technical recession.

The EU Statistics agency Eurostat was reporting that Germany had zero economic growth in the third quarter, after registering a shrinkage of 0.2 percent in the second quarter. One of the commonly used definitions of recession is two straight quarters of declining output. Italy also registered zero growth following a contraction of 0.1% in the second quarter.

Various factors, such as increased energy prices, Chinese manufacturers and industrial machinery producers, shortage of skilled workers, and too much red tape, have stalled the manufacturing and export-oriented economy of Germany.

An additional headwind to Europe is the imposition of a 15 percent tariff, or import tax, on goods entering the U.S., both on goods imported to it and in Europe, and waiting on a potential increase in higher tariff rates due to the uncertainty presented by give-and-take negotiations between the executive Commission and the European Union.