The European Central Bank (ECB) is keeping its feet on the ground ahead of the summer holidays and is not making any changes to interest rates as fears of excessive inflation are too great.
Inflation in the services sector, which has proven to be very persistent, is a major concern for the Euro Central Bank: in June, it stood at 4.1 percent, the same as in May. ECB President Lagarde warned earlier this month that it would take some time for the ECB to collect enough data to be sure that the risk of excessive inflation had been averted.
The monetary authorities around Central Bank President Christine Lagarde decided on Thursday during the ECB council meeting in Frankfurt to leave the policy rate at 4.25 percent. The main deposit rate on the financial market that banks receive for excess parking fees remains at 3.75 percent.
Interest rate change in June
The ECB completed the interest rate turnaround in June, loosening the screw for the first time since 2019. The determination of the appropriate level and the duration of the restrictive level by the ECB Governing Council will continue to depend on the data situation going forward and will take place on a meeting-by-meeting basis, the ECB explained: “The ECB Governing Council does not commit itself in advance to a specific interest rate path.”
Economists had expected a break in interest rates. Inflation in the Community of 20 countries fell to 2.5 percent in June. It is therefore not far from the ECB’s target of 2.0 percent, which it wants to achieve as the optimal level for the economy.
Wage growth drives inflation
Wage growth, one of the main inflation drivers in the euro area, has however remained strong recently. In the first quarter, collectively agreed wages in the euro area rose by 4.7 percent. According to Philip Lane, chief economist at the ECB, recent business news now points to a slowdown in wage growth. According to a Reuters survey last week, economists expect the ECB to cut interest rates twice more this year. Economists expect the interest rate meetings in September and December to fall by a quarter of a percentage point.
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.
