ECB, rates unchanged. Lagarde: “It is premature to talk about cuts”

Brussels – Forward as planned. The European Central Bank leaves interest rates unchanged, keeping to the schedule that plans a possible reconsideration not before July. The ECB Governing Council meeting, therefore, holds no surprises for markets and the real economy. “The consensus around the table was that it was premature to discuss rate cuts,” explained ECB President Christine Lagarde at the end of the meeting. “Another thing on which there was a lot of consensus around the table was that we had to continue to depend on data” in making monetary policy decisions, and so we will.

The data suggest that “the tight financing conditions are dampening demand and this is helping to push down inflation.” So reads the accompanying note to the decisions taken in Frankfurt, where precisely for this reason there are no plans, for now, to change course. The interest rate on the main refinancing operations remains at 4.5 per cent, the interest rate on the marginal lending facility does not move from the 4.75 per cent threshold, and the interest rate on the deposit facility remains at 4 per cent.

Lagarde wants to respond to criticism from those who see restrictive policy as bottlenecking the economy. “I am proud of my staff, I am proud to chair this institution,” the premise. Then the emphasis: “We are guided by a mission, which is price stability, and we serve the Europeans.”

If the ECB does what it can and must, however, the same must be done at the member state level. Data in hand, those on which the Eurotower bases its decisions, “the euro area economy is likely to be stagnant in the last quarter of 2023,” Lagarde notes. A situation that could protract as “incoming data continue to signal weakness in the near term.” Between the Russian-Ukrainian conflict, conflict in the Middle East, Red Sea crisis, “risks to economic growth remain skewed to the downside.” However, admits the ECB president, “some forward-looking survey indicators point to a pickup in growth further ahead.” Provided homework is done.

First, it is necessary to “gradually reduce the high debt ratios on public debt,” Lagarde stressed. And then reforms must be implemented. Structural reforms and investment to improve the euro area’s supply capacity, which would be supported by the “full implementation of the EU’s Next Generation program” and thus the National Recovery Plans (NRPs), “can help reduce medium-term price pressures” and thus inflation.

Among the reforms is the one of the European Stability Mechanism. Lagarde mentions it indirectly when she stresses that “it is imperative to accelerate progress towards the Capital Markets Union and the completion of the Banking Union.” A reformed ESM, with new powers and attributions, is needed to complete the latter. But everything is stuck in Italy, due to the non-ratification by the Italian parliament. Another, year-old call to government Meloni and to the Minister of Economy, Giancarlo Giorgetti.