The European Central Bank (ECB) shared on Thursday that it will keep its interest rates unchanged for the fourth consecutive time in a row since last year. The interest rate on the main refinancing operations will remain at 4.50%, on the marginal lending facility and the rate on the deposit facility being kept at 4.75% and 4.00% respectively.
The inflation rate is projected to average 2.3% in 2024, with the downward revision reflecting “a lower contribution from energy prices.” Over the next two years, the inflation is expected to average 2.0% in 2025, and 1.9% in 2026, the latest estimates by the ECB staff showed. “Although most measures of underlying inflation have eased further, domestic price pressures remain high, in part owing to strong growth in wages,” the central bank pointed out.
The bank’s Governing Council stressed that future decisions “will ensure that policy rates will be set at sufficiently restrictive levels for as long as necessary.” The bank also slashed this year’s growth projection to 0.6%, after which it is anticipated to grow at 1.5% in 2025 and 1.6% in 2026.
Lagarde: Economy still weak, risks to downside
European Central Bank (ECB) President Christine Lagarde said on Thursday that the euro area economy remains weak, with growth risks tilted to the downside. She said economic activity is projected to remain subdued in the near term but that surveys point to a “gradual recovery” over the course of this year. The growth in 2025 and 2026 will be supported “initially by consumption and later also by investment,” while the impact of high interest rates fades and demand for Eurozone exports increases.
“Domestic price pressures are still elevated, in part owing to robust wage growth and falling labor productivity,” Lagarde said, adding that the growth in wages is starting to moderate, while profits are absorbing part of the rising labor costs, reducing inflationary effects. She said measures of longer-term inflation expectations remain “broadly stable, with most standing around 2%.”