By Brian Swint
The European Central Bank (ECB) has announced that it will be leaving interest rates unchanged for the time being. This decision comes as both the U.S. Federal Reserve and the ECB face the crucial question of when to start lowering borrowing costs.
While cutting rates may not be an immediate concern in Europe, the outlook for economic growth remains weak. Additionally, inflation is rapidly slowing, which will likely put more pressure on the ECB in the near future.
ECB President Christine Lagarde stated earlier this month that the interest rate has likely reached its peak, but the central bank is not considering any rate cuts until the summer. Lagarde emphasized the need for inflation to remain low and for wage increases to be controlled in the following months.
Coinciding with the ECB’s decision, the Federal Reserve is also expected to keep its policy unchanged at its upcoming rate-setting meeting. The markets have adjusted their predictions for the first Fed rate cut from March to May, according to the CME FedWatch tool.
The ECB does not anticipate reaching its 2% inflation goal until 2025. In December, the inflation rate rose to 2.9% from 2.4% the previous month. However, it has significantly decreased since its peak above 10% in October 2022.
Moreover, the prospects for economic growth in the Eurozone are increasingly feeble. The ECB projects a modest expansion of 0.8% this year, following a meager growth rate of 0.6% in 2023.
At this meeting, the central bank will not be updating its projections.