ECB Holds Rates Steady, Signals Easing Ahead
11 Aprile 2024 - 11:00AM
RTTF2
The European Central Bank left its key interest rates unchanged
on Thursday, but signaled policymakers are gaining confidence on
inflation returning to the 2 percent target and could lower rates
in coming months.
The Governing Council, led by ECB President Christine Lagarde,
left the main refinancing rate, or refi, unchanged at 4.50 percent,
as expected.
The deposit facility rate was held steady a record high 4.00
percent and the lending rate was retained at 4.75 percent.
Policymakers consider that the key interest rates are at levels
that are making a substantial contribution to the ongoing
disinflation process, the ECB said. Future decisions will ensure
that its policy rates will stay sufficiently restrictive for as
long as necessary, the bank added.
"If the Governing Council's updated assessment of the inflation
outlook, the dynamics of underlying inflation and the strength of
monetary policy transmission were to further increase its
confidence that inflation is converging to the target in a
sustained manner, it would be appropriate to reduce the current
level of monetary policy restriction," the ECB said.
Markets widely expect the central bank for the single currency
bloc to lower interest rates in the June 6 policy session.
Expectations have been strengthened by the easing trends in
inflation data, though underlying price pressures remain high, and
recent comments from ECB policymakers including Lagarde. "Even if
the policy announcement does not explicitly mention June as the
moment for a first rate cut, we think that today's meeting should
mark the final stop before the cut," ING economist Carsten Brzeski
said.
"The faster-than-expected drop in headline inflation, as well as
anaemic growth, have opened the door for some rate cuts. Not a
full reversal of the rate hikes since July 2022, but rather a soft
loosening of a still restrictive stance."
Capital Economics economist Jack Allen-Reynolds said the ECB's
decision to update its guidance suggests that an interest rate cut
at the next meeting in June is very likely.
"...we think that the conditions will be in place for the Bank
to bring the deposit rate down to 3 percent by the end of the year
and further next year," the economist added.
The bank reiterated that it will continue to follow a
data-dependent and meeting-by-meeting approach to determining the
appropriate level and duration of restriction, and that it is not
pre-committing to a particular rate path.
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