The ECB kept its key deposit rate at 2.5% on Thursday, in line with the Fed and
market expectations. While rising energy costs prompted a 25bp hike in September
and continue to lift inflation, mounting French sovereign stress — France's
10-year yield topped 5% for the first time in over 20 years last week — has
reduced policymakers' urgency to tighten further, since higher yields push up
household and corporate borrowing costs and act to cool demand. Mitsubishi UFJ
economist Henry Cook said that despite a more adverse energy market since
September, the rise in sovereign yields has lessened the immediacy for action.
