ECB leaves rates unchanged: ‘don’t buy the dip’

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The FTSE 100 index is down 1.5% on Thursday after the European Central Bank left interest rates unchanged on fears of stagflation related to the ongoing war in Ukraine.

ECB key rates at present

Benchmark refinancing rate 0%
Marginal lending facility rate 0.25%
Deposit facility rates negative 0.5%

Uncertainty is at unprecedented levels at present, with higher energy prices threatening to further worsen inflation and the Ukraine war expected to exacerbate the supply constraints, resulting in a hit to economic growth. According to Premier Miton Investors’ Neil Birrell:

Inflation will be rampant, driven by energy and food prices soaring, turbo charged by the conflict in Ukraine. It can’t be left to run out of control, but, equally, the ECB is worried about acting in a way that makes growth roll over, with stagflation being the outcome.

Why is it not the time to buy the dip?

Brent Crude remains at near $120 a barrel this morning as the highest level meeting between Russia and Ukraine failed with no breakthrough on cease fire. As per economist Mohamed El-Erian:

Unless investors can identify the so-far elusive Putin offramp, their heavily exposed equity positions would be better served by rationalizing them during the bounces rather than buying the current dip outright and hoping for the immediate initiation of a long rally.

A day earlier, industry expert Andy Lipow said oil prices at $150 a barrel was a possibility, which could lead to a global recession if sustained.

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