Despite falling inflation
ECB does not touch key interest rates
April 11, 2024, 2:15 p.m
Despite falling inflation and economic weakness, the European Central Bank is not initially lowering key interest rates. The Governing Council of the ECB decides this. However, the financial markets expect such an interest rate move to take place soon.
The European Central Bank (ECB) is changing course and is heading for an imminent first interest rate cut. At their monetary policy meeting in Frankfurt, the monetary authorities led by ECB President Christine Lagarde decided to keep the key interest rate at 4.50 percent and the deposit rate, which sets the trend on the financial market, at 4.00 percent.
At the same time, however, they indicated that they would soon initiate a turnaround in interest rates: “Should its updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission further strengthen the Governing Council’s confidence that inflation is moving sustainably towards the target value “An easing of the current monetary policy tightening is appropriate,” explained the euro watchdog.
The ECB has been holding on to record high key rates since September 2023, when it last raised interest rates in the fight against inflation. Inflation in the euro zone has now fallen to 2.4 percent in March, after 2.6 percent in February and 2.8 percent in January. The ECB’s target of 2.00 percent, which it aims to achieve as the optimal level for the currency area in the medium term, is now within reach. The times of high inflation, which rose to over ten percent at times in autumn 2022, are long gone. Ten interest rate increases by the ECB between summer 2022 and September 2023 had an impact.
In recent weeks, a number of monetary authorities have already expressed the view that the interest rate meeting on June 6th could be the appropriate starting point for the interest rate turnaround. Wage growth, which has recently been one of the strongest drivers of inflation in the euro area, has recently weakened somewhat. In addition, the tight financing conditions continue to dampen the economy.
ECB President Lagarde said in March that, based on the data, the central bank would probably have enough certainty in June to decide on an initial interest rate cut. The monetary authorities should then have, among other things, important data on this year’s collective bargaining agreements from the euro countries. In addition, new economic and inflation forecasts from the ECB economists are expected at the meeting.
In the latest interest rate survey by the Reuters news agency at the end of March, more than 88 percent of the economists surveyed assumed that the Euro Central Bank would lower key interest rates again for the first time in June. The expectations on the financial market are heading in the same direction. Prices on the money market recently showed that investors there estimate the probability of an interest rate cut in June to be around 70 percent. The monetary authorities are currently expecting at least three interest rate cuts this year.