ECB holds firm on high interest rates, but there is a silver lining

ECB holds firm on high interest rates, but there is a silver lining


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  • The ECB kept interest rates at 4%, despite lowering inflation and growth forecasts.
  • Inflation is now expected to be 2.3% for the year, down from 2.7%.
  • Economic growth prediction for the eurozone has been reduced to 0.6% from 0.8%.
  • Concerns about wage growth potentially keeping inflation above the 2% target.

The European Central Bank has made a move that’s got everyone talking, but not in the way you might expect. They’ve decided to keep interest rates steady, even though they’ve cut down their guesses for both inflation and how fast the economy will grow. It seems like the eurozone’s economy is struggling, but the ECB isn’t convinced this is the time to change course on interest rates.

At their latest meeting, the ECB kept the benchmark deposit rate at a record 4 percent. What’s interesting here is they think inflation will only go up by 2.3 percent this year, which is less than their earlier guess of 2.7 percent. This could mean they might lower rates in the next few months.

But it’s not just inflation they’re worried about. The ECB also thinks the economy will grow slower than they thought before, expecting only a 0.6 percent increase this year, down from 0.8 percent. It looks like the economy is barely moving forward, and some people at the ECB are worried that people getting bigger paychecks could make it hard to keep inflation down, especially in jobs that need a lot of people power.

They’re also looking at what they call core inflation, which is like regular inflation but doesn’t count the cost of food and energy since those prices jump around a lot. They think this will be about 2.6 percent, a bit less than they thought before.

This decision by the ECB to hold off on changing interest rates isn’t happening in a vacuum. The Bank of Canada made a similar move just the day before, and it looks like the Federal Reserve and the Bank of England might do the same soon. It seems like everyone’s changing their bets from expecting rate cuts soon to thinking it’ll happen in the summer.

ECB President Christine Lagarde mentioned there’s definitely a slowdown in how fast prices are rising, but they’re not ready to cut rates just yet. They want to wait for more information over the next few months. This has led to more people betting on rate cuts next year, thinking there could be a whole percentage point drop in 2024.

The big picture here is that the ECB, like other big central banks, is trying to figure out when they can say they’ve beaten inflation and can start to ease up on the tough measures they’ve taken. They’re close to their target but don’t want to act too fast. They especially want to make sure that the cost of living doesn’t start going up too quickly again because of higher wages.

They’ve also shared their latest predictions, thinking inflation will be around 2.3 percent this year, down from their earlier guess of 2.7 percent. They’ve even adjusted their outlook for the next couple of years, expecting things to stabilize around their 2 percent target.

But even though they’re seeing signs of inflation cooling off, they’re cautious about saying the battle is won. They want to keep a close eye on new information, especially on how wages are changing. Some people, like the Greeks, think it’s too soon to make any big moves on rates.

In the U.S., the Federal Reserve is also being careful, wanting to be really sure inflation is under control before they think about lowering rates. And the Bank for International Settlements is warning everyone to be careful, especially because the cost of services, like getting your hair cut or eating out, could keep inflation stubborn.

Economists are saying it’s better to wait a bit longer before cutting rates, to make sure they don’t have to start raising them again if inflation picks up. But with signs that inflation is cooling and other central banks also thinking about easing up, the ECB is expected to start lowering rates, just not right away.

President Lagarde has said they expect this slowdown in how fast prices rise to continue, which will be clear from the latest data. But there are voices at the ECB, like Isabel Schnabel, warning not to rush into cutting rates because there are still risks, like prices in the service sector staying high or problems in the job market.

Disclaimer: The information provided is not trading advice. Cryptopolitan.com holds no liability for any investments made based on the information provided on this page. We strongly recommend independent research and/or consultation with a qualified professional before making any investment decision.

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Jai Hamid

Jai Hamid is a passionate writer with a keen interest in blockchain technology, the global economy, and literature. She dedicates most of her time to exploring the transformative potential of crypto and the dynamics of worldwide economic trends.

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