The ECB should maintain interest rates as inflation falls

The European Central Bank (ECB) is expected to keep interest rates at current levels on Thursday, while a rapid decline in inflation is fueling speculation about when pressures will begin to ease.

After annual inflation unexpectedly fell to 2.4% in November, already close to the ECB’s 2% target, the change in tone is noticeable even among those who most advocated tightening monetary policy, the most aggressive since its inception. institutions.

“When the facts change, I change my mind,” said Germany’s Isabelle Schnabel, an influential member of the ECB’s executive committee, quoting economist John Maynard Keynes.

In recent statements, Schnabel, who is aligned with the hawkish ECB, considered “further interest rate hikes unlikely.”

At their final meeting of the year, ECB officials “will have no choice but to acknowledge that they may meet their inflation target sooner than expected,” according to Andrew Kenningham, an analyst at Capital Economics, quoted by AFP.

The deposit rate is currently at 4%, the highest level recorded since the introduction of the single currency in 1999, while the main refinancing interest rate is at 4.5% and the rate applicable to the facility margin lending remains at 4.75%.

Forecasts indicate rates should remain unchanged, but speculation has already begun over the timing of future cuts, with markets expecting the ECB could cut interest rates by 100 basis points over the next year, with the first cut coming in April.

ECB President Christine Lagarde reiterated that “it is not yet time to declare victory” in the fight against rising prices, which have led the institution to 10 consecutive interest rate hikes since July 2022, with the first pause in October.

New macroeconomic forecasts will also be released on Thursday, with the downward inflation forecast expected to point to 3.2% in 2024, according to ING economist Carsten Brzeski.