Key Takeaways
- The European Central Bank (ECB) kept rates unchanged at record highs Thursday even as it lowered its inflation forecasts.
- Like the Federal Reserve, the ECB signaled it’s in no rush to cut interest rates.
- The central bank said that future rate decisions would be made “in light of the incoming economic and financial data.”
The European Central Bank (ECB) on Thursday kept interest rates unchanged at record highs, even as it lowered its inflation forecasts.
Like the Federal Reserve, which has signaled it’s in no rush to cut interest rates, the ECB kept rates unchanged as it waits for inflation to reach its 2% target, noting that wages remain hot.
“Although most measures of underlying inflation have eased further, domestic price pressures remain high, in part owing to strong growth in wages,” the ECB said in a statement, noting that "restrictive" financing conditions and past rate hikes are weighing on demand and bringing down inflation. The ECB said that it would hold its key deposit rate at 4%, and that future rate decisions would be made “in light of the incoming economic and financial data.” The central bank said it had downwardly revised its 2024 inflation projection to reflect a lower contribution from energy prices. It said it expects inflation this year to be 2.3%, lower than its previous forecast of 2.7%, and average 2% in 2025 and 1.9% in 2026.Europe's economy was impacted by high energy prices from Russia's 2022 invasion of Ukraine and rising interest rates last year, while the U.S. economy has grown faster than economists had expected.
The ECB lowered its growth projection for the eurozone to 0.6% for the year from its 0.8% estimate previously, noting it expects economic activity "to remain subdued in the near term." Growth could pick up to 1.5% in 2025 and 1.6% in 2026, the central bank forecast, "supported initially by consumption and later also by investment."
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