European Central Bank announces interest rate decision

The European Central Bank (ECB) kept its key interest rates unchanged at its Governing Council meeting today, in line with market expectations. Maintaining the benchmark interest rate at 4.50 percent, the ECB kept the deposit facility rate at 4.0 percent and the marginal lending rate at 4.75 percent.

The statement said, "The ECB will ensure that interest rates remain sufficiently restrictive for as long as necessary." In the projections released following the Governing Council meeting, the bank lowered its inflation and growth forecasts.

GROWTH FORECAST LOWERED

The ECB lowered its 2024 inflation forecast from 2.7 percent to 2.3 percent, while reducing its growth forecast from 0.8 percent to 0.6 percent.

The press release published by the ECB following the Governing Council meeting is as follows:

"The Governing Council today decided to keep the three key ECB interest rates unchanged.

Since the last Governing Council meeting in January, inflation has fallen further. In the latest ECB staff projections, inflation has been revised downwards, particularly for 2024, which largely reflects a lower contribution from energy prices. Staff now project inflation to average 2.3% in 2024, 2.0% in 2025 and 1.9% in 2026. Projections for inflation excluding energy and food have also been revised downwards and are now projected to average 2.6% for 2024, 2.1% for 2025 and 2.0% for 2026.

Although most measures of underlying inflation have eased further, domestic price pressures remain high, partly owing to strong growth in wages.

Financing conditions are restrictive and the past interest rate increases continue to weigh on demand, which is helping to push down inflation.

"ECONOMIC ACTIVITY IS EXPECTED TO REMAIN SUBDUED"

Staff have lowered their growth projection for 2024 to 0.6%, and economic activity is expected to remain subdued in the near term. Thereafter, the economy is expected to pick up, growing by 1.5% in 2025 and 1.6% in 2026, supported initially by consumption and later also by investment.

The Governing Council is determined to ensure that inflation returns to its 2% medium-term target in a timely manner. Based on its current assessment, the Governing Council considers that the key ECB interest rates are at levels that, maintained for a sufficiently long duration, will make a substantial contribution to this goal. The Governing Council’s future decisions will ensure that policy rates will be set at sufficiently restrictive levels for as long as necessary.

The Governing Council will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction. In particular, the Governing Council’s interest rate decisions will be based on its assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission."