ECB leaves rates unchanged, inflation revised downward for 2023 and 2024

Brussels – No change. Interest rates remain at their current levels. The European Central Bank Governing Council once again decided there was no need to change interest rates and kept them steady. The inflation outlook is improving, with staff expectations downwardly revised to 5.4 percent in 2023, 2.7 percent in 2024, 2.1 percent in 2025, and 1.9 percent in 2026. This does not justify a new increase or a reduction. After all, ECB President Christine Lagarde had made things clear at the previous Eurotower board meeting. At most, rates will remain at current levels (on main refinancing operations at 4.5 percent, on the marginal lending facility at 4.75 percent, and the deposit facility at 4 percent). Cuts aren’t on the table until at least July 2024. Still, uncertainty remains. It is true that “inflation has declined in recent months,” but the ECB explains in the accompanying note that “it is likely to recover temporarily in the near term.” Of course, there are spillovers to the real economy, as tighter financing conditions are “dampening demand, and this is contributing to lower inflation.” Therefore, economic growth should “remain subdued in the short term.” The ECB will continue reinvesting principal payments from maturing securities purchased under the pandemic emergency purchase program (PEPP) during the first half of 2024, discontinuing them at the end of 2024.