The European Central Bank (ECB) remains willing to sacrifice economic growth to keep prices in the euro zone at bay. The institution chaired by Christine Lagarde decided on Thursday to continue with interest rates at 4.5%, a level not seen since 2001, despite having sharply lowered its inflation forecasts and confirming fears of an economic slowdown in the first half of 2024. "Since the last meeting of the Governing Council held in January, inflation has continued to fall," admitted the Frenchwoman, who justified the decision on "domestic inflationary pressures", which in her opinion "remain intense, due in part to strong wage growth". Lagarde has also dampened expectations of a first cut in April by arguing that until June they will not have all the necessary data to start deciding with greater "certainty".
Frankfurt divested itself of any roadmap at the outbreak of the inflationary crisis, which sent prices flying above 10% in autumn 2022. Since then, the ECB has declared itself "dependent on data" when it comes to making decisions. At this week's meeting of the Governing Council, the institution's leadership has had valuable new information, from the projections of its team of economists. And these confirm that prices are moderating faster than expected, largely thanks to the fall in energy prices. Specifically, the monetary authority forecasts that average inflation this year will already stand at 2.3%, four tenths below December's forecasts and very close to the 2% mandate. For 2025, a CPI of 2% is expected, and for 2026, 1.9%.
The abrupt rise in interest rates – which has not yet been fully reflected in the real economy – has led to greater difficulty in accessing credit, lower consumption and a cut in investment. And this has happened in an environment of fragility of the Eurozone economy, which continues to lose ground to the United States or China. "It is still weak," Lagarde acknowledged, who has nevertheless predicted a rebound from the second half of the year. ECB economists, in fact, outline a situation of stagnation for this year, with a poor growth of 0.6%, two tenths less than they expected in December. For 2025, the ECB projects an expansion of 1.5%, and for 2026, 1.6%.
The monetary authority continues to have no hesitation when faced with the dilemma of choosing between growth or inflation. Lagarde has stated that the process of "disinflation" is underway, even warning that "good progress" is being made. However, he added that they need more data to be "sufficiently sure" that they will be able to return to a 2% price increase. Specifically, the ECB chief said that the Council wants to see the evolution of inflation linked to services and wages, whose rises began to moderate in the last quarter of 2023, but which continue to worry hawks. For this reason, the ECB conclave unanimously resolved to keep interest rates at 4.5% and the deposit facility at 4%.