The ‘guardian of the euro’ has stated that interest rates are ‘at a level that, if maintained for a sufficiently long period, will contribute substantially’ to bringing inflation back to the 2% target.
The Governing Council of the European Central Bank (ECB) decided on Thursday to maintain interest rates, leaving the reference rate for its refinancing operations at 4.50%, while the deposit rate remains at 4% and the lending facility at 4.75%. .
In this way, the issuing institution leaves the interest rate intact for the fourth time in a row since it put on the brakes at its meeting in October, after ten consecutive increases in the money price, which brought the rate to the highest level in more than twenty years.
The ECB has said that interest rates are “at a level that, if maintained for a sufficiently long period, will contribute substantially” to bringing inflation back to the 2% target.
The ‘guardian of the euro’ had raised rates by 450 basis points during the rate hike cycle that started in July 2022, although markets are now betting the ECB will cut the benchmark rate in the summer.
The ECB will continue to apply a “data-dependent approach” to determine the appropriate level of tightening and the duration of monetary policy. In particular, the inflation outlook will be assessed taking into account incoming economic and financial data, the dynamics of underlying inflation and the intensity of monetary policy transmission. “Future decisions of the Board of Directors will ensure that interest rate officials are set at sufficiently restrictive levels for as long as necessary,” emphasizes the entity led by Christine Lagarde.
The ECB’s decision comes after year-on-year inflation in the eurozone stood at 2.6% in February, two-tenths lower than the previous month’s price increase. By excluding the impact of energy, food, alcohol and tobacco, the underlying percentage also fell by two-tenths to 3.1%. This value was the lowest since March 2022.
Moreover, Eurostat confirmed that Eurozone GDP avoided a recession after registering stagnation in the fourth quarter compared to the previous three months, when it contracted by 0.1%.
Among the major EU economies, Germany recorded a 0.3% contraction in the fourth quarter, after stagnating between July and September, while France repeated the paralysis of the previous three months and Italy expanded by 0.2% accelerated from 0.1% in the third quarter. With a growth of 0.6% compared to 0.4%, Spain was again the major economy with the best evolution.
The performance of the eurozone economy between October and December was significantly worse than that of the United States, where GDP rose by 0.8% quarter on quarter, although this was more positive than the performance of the United Kingdom, which came off a loss of 0.3% entered a technical recession. % in the last quarter of 2023 and a decrease of 0.1% during the third quarter.
Source: EITB

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