dpa
Frankfurt
The European Central Bank (ECB) kept its key eurozone interest rates unchanged at its monetary policy meeting on Thursday.
The main refinancing operations rate, which provides liquidity to the banking system, stands at 4.5%. The ECB’s deposit rate, which credit institutions receive when they park money at the bank, stands at a record-high 4%.
This is the fourth time in a row that the ECB has left key interest rates in the 20-country currency area unchanged.
The ECB ended its long era of zero and negative interest rates in July 2022. It repeatedly hiked rates in order to tame soaring inflation as the euro currency area came out of the pandemic.
The central bank ultimately raised interest rates 10 times in a row before the run ended in October.
As this makes loans more expensive, it can curb demand and counteract high inflation rates. However, more expensive financing is also a burden for companies and private investors.
The inflation rate in both the eurozone and in Germany, Europe’s largest economy, has recently been trending downwards.
In the eurozone, consumer prices in February 2024 were 2.6% higher than a year earlier. In Germany, the annual inflation rate in February reached its lowest level since June 2021 at 2.5%.
Overall, the price trend is therefore moving towards the ECB’s medium-term target of 2%. At this level, the monetary authorities believe price stability is guaranteed.
Higher inflation rates reduce the purchasing power of consumers. They can then afford less for each euro.
According to the ECB’s latest assessment, inflation in the eurozone will fall faster than expected in December. At the same time, the outlook for the economy in the currency area has deteriorated further, according to the central bank’s forecast published on Thursday.
The ECB now expects an inflation rate of 2.3% for the current year.
In its forecast presented in December, the central bank had still assumed a rate of 2.7%. A rate of 2% is expected in 2025.
A faster decline in inflation could open up scope for interest rate cuts.
The fact that the outlook for the eurozone economy has deteriorated further also speaks in favour of this. The ECB now expects growth of just 0.6% this year, compared to a forecast of 0.8% in December.
Gross domestic product (GDP) is expected to grow more strongly again in 2025 (1.5%) and 2026 (1.6%).
Economists expect the ECB to cut interest rates this year. However, the monetary authorities have so far refused to commit to an exact date. In recent weeks, leading central bankers have warned against prematurely declaring victory over inflation.
“Even if the temptation may be great, it is too early for interest rate cuts,” Bundesbank President Joachim Nagel said at the Bundesbank’s balance sheet presentation on February 23. Inflation may be on the decline, but the target has not yet been reached, he said.
In a speech to the European Parliament at the beginning of last week, ECB President Christine Lagarde confirmed earlier assessments that the process of declining inflation rates is likely to continue.
However, Lagarde emphasized that the ECB Governing Council must first be confident that the central bank’s inflation target will be achieved in the long term before changing course.
