The European Central Bank opted to keep interest rates unchanged on Thursday, reaffirming their cautious stance on rate cuts as inflation remains above the bank’s target range.
The ECB decided to leave the key deposit rate steady at 3.75 percent, believing that this level will be effective in curbing demand for loans among households and businesses, thereby slowing down the eurozone economy and mitigating inflationary pressures. This decision follows a recent interest rate cut of a quarter point last month, marking the first decrease in almost five years.
While inflation in the eurozone has significantly dropped from its peak in late 2022, averaging at 2.5 percent across the 20 eurozone countries in June, policymakers are striving to achieve a sustainable return to their 2 percent target. ECB President, Christine Lagarde, indicated that inflation is projected to hover around current levels for the remainder of the year during a press conference in Frankfurt.
Despite supportive economic data aligning with the bank’s inflation projections, Lagarde emphasized that policymakers are not committing to a specific rate trajectory. Market expectations foresaw the ECB maintaining rates at this meeting, yet speculation persists regarding the likelihood of one or two additional rate cuts by the year’s end.
The next policy-setting meeting is scheduled for mid-September, where the bank will unveil updated inflation and growth forecasts. Traders are currently estimating an 80 percent probability of a rate cut at that upcoming assembly.
