Today, the European Central Bank kept the interest rates on the main refinancing operations at 4.5%, lending at 4.75%, and deposits at 4%, unchanged, a day after a similar step was taken by the Federal Reserve (US Central Bank), indicating an early end to the last remaining plan. To buy bonds.
Annual inflation in the euro zone fell to 2.4% in November, recording its lowest level since July 2021, according to the official statistics agency of the European Union (Eurostat).
The European Central Bank raised interest rates to a record high earlier in the year, but unexpectedly moderate inflation data over the past few months ruled out further monetary policy tightening, turning the debate to how quickly the ECB will reverse course.
Inflation fell
In its monetary policy statement issued today, the European Central Bank expected headline inflation to average 5.4% in 2023, 2.7% in 2024, 2.1% in 2025, and 1.9% in 2026.
The European Banking Corporation noted that core inflation has declined further, but domestic price pressures remain high, primarily due to strong growth in unit labor costs.
Eurosystem staff expect inflation excluding energy and food to average 5% in 2023, 2.7% in 2024, 2.3% in 2025, and 2.1% in 2026.
The European Central Bank indicated that previous interest increases still have a strong impact on the economy, and that tight financing conditions lead to reduced demand in the markets, which helps reduce inflation.
Growth forecasts
The European Bank expects economic growth to remain weak in the near term, and to recover as real incomes rise, with people benefiting from lower inflation, higher wages, and improved demand.
Growth is likely to rise from an average of 0.6% in 2023 to 0.8% in 2024, and to 1.5% for both 2025 and 2026.
The bank stressed its determination to ensure that inflation returns to its medium-term target of 2% in a timely manner, and based on its current assessment, it believes that the key interest is at levels that contribute to achieving this goal, if maintained for a long period.
The European Central Bank’s key interest rate is the primary tool for determining the bloc’s monetary policy position.
