Frankfurt, Germany. The European Central Bank (ECB) maintained interest rates for the euro zone this Thursday, but raised expectations of a rate cut at the June meeting, given the slowdown in inflation.
The European issuer kept its monetary policy unchanged for the fifth consecutive time and left the reference interest rate at 4.0 percent, its highest level since the launch of the euro in 1999.
The refinancing rate and the marginal loan rate remained at 4.50 and 4.75 percent, respectively.
If the “updated assessment” of the inflation outlook and the impact of monetary policy on the economy “further strengthened confidence” in a sustainable convergence of price increases towards the 2 percent target, the ECB would consider “ “appropriate” to reduce restrictive monetary policy, the European issuer said in a statement.
The president of the ECB, Christine Lagarde, reiterated to the press this “loud and clear” message that suggests that, barring a surprise rise in inflation in the coming months, the conditions will be in place for a rate cut at the next meeting in June.
Inflation in the eurozone fell to 2.4 percent in annual terms in March, 0.2 percentage points less than what was recorded in February, approaching the central bank’s objective.
The ECB highlighted that “the rise in wages is gradually slowing and companies are absorbing part of the increase in labor costs through their profits.”
The previous increases in interest rates “continue to weigh on demand, which contributes to the moderation of inflation,” declared the entity, which warned that internal pressures on prices remain strong.
languid growth
The issuer’s governors launched a monetary contraction strategy to control the inflationary outbreak caused by Russia’s invasion of Ukraine in February 2022.
The ECB raised rates ten consecutive times from mid-2022 to control inflation, which in October 2022 reached a peak of 10.6 percent.
The Frankfurt-based issuer will wait for more indicators before deciding at its next meeting in June whether the conditions for a rate cut are met.
“Some members” of the Governing Council felt “confident enough” to cut rates in April, but “agreed to join the consensus of a very large majority” on “the need to reinforce confidence,” Lagarde explained.
The European Central Bank insists that its decisions depend on economic data and that the institution “is not committed in advance to a path for rates,” but many analysts expect a first rate cut in June.
The rise in rates hit the economies of the 20 euro zone countries, hurting demand as households and businesses face rising credit and mortgage costs.
Euro countries narrowly avoided a recession in the second half of 2023, with Germany, the locomotive of these economies, recording a lackluster performance.
And the single currency countries ended the year with a slight expansion of 0.5 percent.
The ECB faces the same dilemma as other central banks, setting up checks and balances to support growth, without harming progress in controlling inflation.
The Swiss National Bank began a cycle of cuts last month, when it cut its rates by 0.25 percentage points, becoming the first of the large issuers to reverse contractionary policy.
In the United States, the Federal Reserve began the rate hike cycle ahead of the ECB and has kept rates level. Inflation data in March, when consumer prices rose 3.5 percent, above expectations, buried expectations of a reduction at the Fed’s next June meeting.
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– 2024-04-18 22:44:16
