ECB Slows Down Further Rate Cuts

After cutting rates following its June 6 meeting, the European Central Bank is cooling the enthusiasm of those expecting further monetary easing in the near future. The Frankfurt-based institute explains in the Economic Bulletin that it “does not intend to bind itself to a particular rate trajectory,” and that the main objective is to ensure that inflation returns to 2% over the medium term, and to do so will keep rates at a fairly restrictive level “for as long as necessary.”

“Despite the progress made in recent quarters, strong domestic price pressures due to high wage growth persist, and inflation is likely to remain above target through much of next year. The latest forecasts for general and core inflation formulated by Eurosystem experts have been revised upwards for 2024 and 2025 compared to the March forecasts. Experts currently estimate overall inflation to average 2.5 percent in 2024, 2.2 percent in 2025, and 1.9 percent in 2026,” the Economic Bulletin says. Meantime, economic growth should settle at 0.9 percent in 2024, 1.4 percent in 2025, and 1.6 percent in 2026, while the ECB explains that the euro area economic recovery in the first months of 2024 has exceeded expectations.

The institute’s board of directors also confirms that it will “reduce its holdings of securities held in the Eurosystem under the Pandemic Emergency Purchase Program (PEPP) by an average of €7.5 billion per month in the second half of 2024.”