Without surprises, what was planned is fulfilled. The board of the European Central Bank (ECB) decided this Thursday to keep eurozone interest rates unchanged. The entity chaired by Christine Lagarde leaves the main reference at 4.50%, where it has been since September of last year. Despite the decrease in inflation – at 2.4% in the last measurement, two tenths less – and a certain exhaustion in the growth of the economy.
In its statement, yes, the ECB changes its tone somewhat. He points out that the current rate levels are appropriate – “they help the disinflation process,” Lagarde has pointed out – but that if the outlook, the path of underlying inflation or the transmission of monetary policy reinforce that confidence that there is a tendency towards its eternal objective of 2% inflation, “it would be appropriate to reduce the current level of monetary policy restriction.” It is something that she did not include in previous statements and the president has reiterated several times today.
Despite opening the door to the first relegation after the cycle of increases, there is no talk of dates. “We are not precommitting ourselves to a particular path of rates,” the French banker has stated on a couple of occasions. It will be seen meeting by meeting. The calendar that the markets and analysts are considering suggests a first reduction in June, the next appointment. “In June we will have much more data and a new projection,” Lagarde said, calling for calm.
The ECB has been repeating for months that it wants to first have the data on the evolution of salaries at the start of the year to make a decision. It is “a data-dependent approach.” The key is to see how much wages are rising, with the main fear of second-round effects. May the higher salaries in turn fuel the increase in prices.
Inflation decreases, yes, salary increases moderate, too, and companies absorb the growth in costs for their benefit, he maintains in his statement. But “domestic inflationary pressures are intense and keep inflation in service prices at high levels (4%),” he notes. The entity has reiterated that the objective is 2% inflation in the medium term. To achieve this, he insists that governments have to finish withdrawing the energy aid deployed after the invasion of Ukraine.
The economy is coming off a lean end to 2023, with growth of one tenth year-on-year in the third and fourth quarters. The doubts in Germany drag down the entire eurozone, with nations moving at multiple speeds: today the south pulls more than the north. The risks are also a harder-than-expected effect of monetary policy, the economy slows down, trade limps or the war in Ukraine drags on, Lagarde reviewed.
The rhythms can also be different between the large central banks. In the US, inflation not only goes down, but it also rises. “Inflation in the eurozone has moderated at a faster pace than in the US and futures markets now assign a greater probability to a rate cut by the ECB than by the Federal Reserve at its monetary policy meetings June,” says Marco Giordano, chief investment officer of fixed income at Wellington Management.
