The European Central Bank (ECB) is heading for its first interest rate cut. The monetary authorities led by ECB President Christine Lagarde decided on Thursday in Frankfurt to keep the policy rate at 4.5 percent and the deposit rate, which sets the benchmark for the financial market, at 4.0 percent, but at the same time indicated that they would bring about a change in interest rates soon.
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 towards the target on a sustainable basis, it would an easing of the current tightening of monetary policy would be appropriate. ,” they told Euro Guardian.
The ECB has maintained record high policy rates since September 2023, when it last raised rates in the fight against inflation. Inflation in the eurozone has now fallen to 2.4 percent in March, after 2.6 percent in February and 2.8 percent in January.
Optimal level within reach
The ECB’s target of 2.0 percent, which it wants to achieve as the optimal level for the currency area in the medium term, is now within reach. The times of high inflation, which sometimes rose to above ten percent in the autumn of 2022, are long gone. Ten interest rate increases by the ECB between the summer of 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 6 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 weakened somewhat recently.
Moreover, 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 sufficient certainty in June to decide on a first interest rate cut. The monetary authorities would then need to have, among other things, important data on this year’s collective labor agreements of the euro countries. In addition, new economic and inflation forecasts from ECB economists are expected during the meeting.
Source: Krone
I’m Ben Stock, a journalist and author at Today Times Live. I specialize in economic news and have been working in the news industry for over five years. My experience spans from local journalism to international business reporting. In my career I’ve had the opportunity to interview some of the world’s leading economists and financial experts, giving me an insight into global trends that is unique among journalists.
