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The European Central Bank (ECB) decided, in yesterday's monetary policy meeting, to keep interest rates unchanged for the fourth consecutive time, as expected by analysts.
However, ECB officials have acknowledged that the easing of inflation is faster than they expected, making possible an eventual rate cut this year, according to Reuters.
After yesterday's meeting, the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility remained unchanged at the levels of 4.50%, 4.75% and 4% respectively. This is the highest ECB interest rate since the launch of the euro in 1999.
The ECB reported yesterday: "Inflation forecasts have been revised downwards, particularly for 2024, mainly reflecting the lower contribution of energy prices."
According to the estimates released yesterday, the ECB expects an increase in consumer prices by 2.3% this year, compared to 2.7%, which was the previous forecast. We remind you that the ECB's inflation target is 2%, and central bank officials believe that this level will be reached in 2025, after which the indicator will drop to 1.9% in 2026.
According to preliminary data published this month by Eurostat, the annual inflation rate in the euro area was 2.6% in February, down from 2.8% in January. Analysts expected a level of 2.5% in February.
Core inflation, which excludes prices of volatile goods such as energy and food, eased to 3.1% in February from 3.3% the previous month. Analysts were expecting a drop of up to 3%.
"Although most of the indicators that make up core inflation have eased, the pressures on domestic prices remain high, in the context of solid wage growth", the ECB mentions.
Analysts expect the ECB to cut interest rates three to four times this year, starting in June.
Also yesterday, the ECB modified its forecasts for the growth of the euro zone economy, anticipating an increase of 0.6% in 2024, after predicting an advance of 0.8% in December. For 2025 and 2026, the ECB estimates an expansion of 1.5% and 1.6%, respectively.
• The Fed is in no hurry to cut interest rates
The President of the Federal Reserve (Fed - US central bank), Jerome Powell, reaffirmed on Wednesday, in Congress, that the institution he leads is in no hurry to reduce interest rates until the authorities are convinced that they have won the fight against inflation, according to Reuters.
The Fed official said it would probably be appropriate to start cutting interest rates "at some point this year." According to his words, the American central bank is not ready for such a measure at the moment.
A similar message has been sent by nearly all Fed officials in recent weeks: the economy and labor market are solid, meaning policymakers have time to wait for more evidence that inflation is returning to the Fed's 2% target before cutting the interests.
The annual U.S. inflation rate slowed to 2.4 percent in January from a peak of 7.1 percent in June 2022. U.S. employers also added 353,000 jobs in January, and economists expect another 200,000 of new positions in February.
At the most recent monetary policy meeting, in January, Fed officials unanimously decided to keep the interest rate at a range between 5.25% and 5.50%, in line with analysts' estimates. This is the highest level in the last 22 years.
Fed officials point out: "The risks to meeting the objectives regarding inflation and the employment rate are moving towards a better balance. If we consider changing monetary policy, we will carefully analyze future data, perspectives and risks".
The Fed's next monetary policy meeting is scheduled for March 19-20.
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