ECB Holds Rates Steady, Flags Upside Inflation Risks From Energy Costs

The European Central Bank left interest rates unchanged on Thursday but warned that inflation risks are skewed to the upside due to surging energy costs, reinforcing market expectations for a December rate hike. The decision was published hours after ECB President Christine Lagarde announced she would step down early, on February 7. "Energy prices have continued to rise, posing upside risks to the inflation outlook and downside risks to the growth outlook," the ECB said, adding that underlying inflation remained broadly stable and wages had not shown a material response to higher prices. The ECB has raised rates twice this year to prevent an energy price jump from becoming entrenched. It noted that financing conditions have tightened since its last meeting, with France now paying a 155 basis-point premium over Germany to borrow for 10 years. Attention turns to Lagarde's 1345 GMT news conference, where she faces questions on French borrowing costs and her future.