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The European Central Bank has left interest rates on hold despite cutting its forecasts for inflation and growth, as the eurozone’s ailing economic outlook failed to convince policymakers that price pressures had been tamed.
The ECB maintained its benchmark deposit rate at an all-time high of 4 per cent at its meeting on Thursday. But it lowered its forecast for inflation this year from 2.7 per cent to 2.3 per cent, opening the door to possible rate cuts in the coming months.
The central bank also reduced its 2024 growth forecast for the fourth quarter in a row, saying it expected eurozone gross domestic product to rise just 0.6 per cent this year, down from its previous estimate of 0.8 per cent.
Even as the economy slows to a crawl, several rate-setters have expressed concern that rapid wage growth could keep inflation above the ECB’s 2 per cent target — particularly in the labour-intensive services sector.
Underlining these worries, the ECB said it expected core inflation — which excludes volatile energy and food prices — to be 2.6 per cent this year, slightly lower than its previous forecast of 2.7 per cent.
The ECB’s decision to leave rates on hold follows a similar move by the Canadian central bank on Wednesday and is expected to be mirrored by the US Federal Reserve and the Bank of England when they meet in two weeks’ time.
Investors have recently shifted their bets on when the trio will start cutting borrowing costs from this month to the summer.
