The head of the European Central Bank does not want to commit as of now
Her the Governing Council of the European Central Bank (ECB) decided to cut interest rates by 0.25% -with almost complete unanimity except one- during today’s meeting.
The head of the ECB, Christine Lagarde, avoided pre-announcing the start of a downward cycle of interest rates, giving “an appointment in September” for the next decision after evaluating the data that the Central Bank will have at its disposal until then.
THE Christine Lagarde, during a press conference following the meeting, he assured that the Central Bank is determined to ensure that inflation returns to its medium-term target of 2% in time. “We will keep key interest rates sufficiently restrictive for as long as necessary to achieve this objective. We will continue to take a data-driven and meeting-by-meeting approach to determining the appropriate level of interest rates,” he emphasized.
In particular, as he explained, decisions on interest rates will be based on its assessment ECB on the outlook for inflation in light of economic and financial data, underlying inflation dynamics and the strength of monetary policy transmission. “We are not committed in advance to a specific course of interest rates,” said Mrs. Lagarde, according to APE BEE.
After all, inflation is expected to hover around current levels for the rest of the year, mainly due to energy prices. It is then expected to decline towards the ECB’s target in the second half of next year due to weaker labor cost growth, the unfolding effects of tight monetary policy and the fading effects of the energy crisis and the pandemic.
The Governing Council also confirmed today that it will reduce the stock of bonds the ECB has acquired under the Pandemic Emergency Securities Purchase Program (PEPP) by €7.5 billion per month on average in the second half of the year .
As for the factors that contributed to today’s decision to cut interest rates, as the ECB chief said, inflation has fallen by more than 2.5 percentage points and the outlook for inflation has improved significantly. Core inflation has also eased, reinforcing signs that price pressures have eased, and inflation expectations have eased. Monetary policy kept financing conditions tight. The weakening of demand and the consolidated estimates of the path of inflation contributed significantly to bringing inflation back down.
The ECB’s latest inflation forecasts have been revised upwards for 2024 and 2025 compared to the March projections. Staff now see inflation averaging 2.5% in 2024 (up from 2.3% in the March forecast), 2.2% in 2025 (up from 2%) and 1.9% in 2026. Economic growth is expected to accelerate to 0.9% (from 0.6% in the March forecast) in 2024, to 1.4% (from 1.5%) in 2025 and to 1.6% in 2026 .
After today’s decision the main ones interest rate deposit rate stands at 3.75% from 4% and the key refinancing rate at 4.25% from 4.5%, marking the start of their downward cycle.
