The Governing Council of the European Central Bank (ECB) has announced its decision to maintain three key interest rates, following indications that inflation is beginning to recede.
An ECB press release disclosed that the interest rate on the main refinancing operations will remain at 4.50%, while the interest rates on the marginal lending facility and the deposit facility will stay at 4.75% and 4.00%, respectively.
According to the same press release, inflation has been decelerating since January, when the Governing Council last convened. The bank has consequently revised its projected inflation rate for the next three years downward, averaging 2.3% in 2024, 2.0% in 2025, and 1.9% in 2026. It also anticipates an average inflation rate excluding energy and food of 2.6% in 2024, followed by 2.1% in 2025 and finally settling at 2.0% in 2026.
Despite a reduction in most underlying causes of inflation, the ECB press release indicated that domestic price pressures remain high. Financing continues to be restrictive, with past interest rate hikes still impacting demand.
As it expects economic activity to continue being restrained, the ECB has also adjusted its growth projection downward to a modest increase of 0.6% in 2024. However, it predicts an economic strengthening by 2025 with growth rates of 1.5% and then further increasing to a steady pace of growth at a rate of about 1.6% by 2026, propelled initially by consumption and later by investment.
The press release affirmed: "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."