Fight against inflation

ECB: key interest rate remains at 4.5 percent

The ECB is leaving the key interest rate at 4.5 percent.

(Bild: The Associated Press)

The European Central Bank (ECB) is on course for an imminent first interest rate cut. On Thursday in Frankfurt, ECB President Christine Lagarde's monetary watchdogs decided to keep the key interest rate at 4.5 percent and the deposit rate, which sets the trend on the financial market, at 4.0 percent, but at the same time indicated that they would soon initiate a turnaround in interest rates.

"Should its updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission further strengthen the Governing Council's confidence that inflation is approaching target on a sustainable basis, an easing of the current monetary tightening would be appropriate," the euro guardians explained.

The ECB has been holding on to the record-high key rates since September 2023, when it last raised interest rates in the fight against inflation. In the meantime, however, inflation in the eurozone fell to 2.4 percent in March, down from 2.6 percent in February and 2.8 percent in January.

Optimal level within reach
The ECB's target of 2.0%, which it is aiming for as the optimum level for the currency area in the medium term, is therefore within reach. The days of high inflation, which temporarily rose to over ten percent in the fall of 2022, are long gone. Ten interest rate hikes by the ECB between summer 2022 and September 2023 had an impact.

In recent weeks, a number of monetary policymakers have already expressed the view that the interest rate meeting on June 6 could be the right starting point for the interest rate turnaround. This is because wage growth, which has recently been one of the strongest drivers of inflation in the eurozone, has recently weakened somewhat.

ECB President Christine Lagarde

(Bild: AFP)

In addition, the tight financing conditions continue to dampen the economy. ECB President Lagarde said in March that the central bank would probably have sufficient certainty from the data situation in June to decide on an initial interest rate cut. Among other things, the monetary authorities should then have important data on this year's wage settlements from the euro countries. New economic and inflation forecasts from ECB economists are also expected at the meeting.