EU keeps interest rate at record high
President of central bank says bloc is making good progress, but hasn’t yet reached 2% target
The European Central Bank left its key interest rate at a record high as it waits for more confirmation that toxic inflation is under control for good — even as high borrowing costs drag on the stalled economy.
The decision Thursday comes as central banks around the world, including the U.S. Federal Reserve, are trying to judge whether inflation has been tamed to the point that they can start cutting rates — making it cheaper for consumers and businesses to borrow, spend and invest — and avoid an economic slowdown that throws people out of their jobs.
“We are making good progress toward our inflation target,” ECB president Christine Lagarde said at a news conference.
But she underlined “we’re not there yet,” adding, “We have a mandate, we have a mission. We are determined to reach our two per cent inflation target in the medium term, and we will be riveted to that.”
Market predictions for an ECB rate cut as soon as April have faded, and expectations among analysts have shifted toward a first trim in June.
Lagarde seemed to drop a hint in that direction when she said the bank would decide its next move based on incoming economic data and that “we will have a little in April and a lot more for our June meeting.”
With recent economic data, “the pressure on the ECB to cut rates earlier has gone up,” Carsten Brzeski, chief of global macro at ING bank, wrote in an analyst note. “We still think that the ECB has good reasons to resist that pressure and to push back expectations.”
The bank cautioned in a statement that “domestic price pressures remain high” as wages rise to catch up with inflation.
The ECB raised its key rate from below zero to four per cent between July 2022 and September 2023 to squelch double-digit inflation.
In Europe, inflation was down to 2.6 per cent in February, well below its peak of 10.6 per cent in October 2022. But the consumer price index has been stuck between two per cent and three per cent for five months, raising concern that the last mile toward the ECB’s goal may be slower than hoped.