BRUSSELS, BELGIUM – NOVEMBER 27: Christine Lagarde, President of the European Central Bank speaks during the European Parliament’s Committee on Economic and Monetary Affairs (ECON) meeting in Brussels, Belgium on Nevember 27, 2023. (Photo by Dursun Aydemir/Anadolu via Getty Images)
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The European Central Bank on Thursday held interest rates steady for the second meeting in a row, as it revised its growth forecasts lower.
The bank was widely expected to leave policy unchanged in light of the sharp fall in euro zone inflation, as investors instead chase signals on when the first rate cut may come and assess the ECB’s plans to shrink its balance sheet.
“The Governing Council’s future decisions will ensure that its policy rates will be set at sufficiently restrictive levels for as long as necessary,” it said in a statement.
The latest staff macroeconomic projections see average real GDP expanding 0.6% in 2023, from a prior forecast of 0.7%. They estimate GDP will expand by 0.8% in 2024, from 1%, previously. The forecast for 2025 was unchanged, at 1.5%.
Headline inflation is meanwhile seen averaging 5.4% in 2023, 2.7% in 2024 and 2.1% in 2025. It had previously forecast readings of 5.6% this year, 3.2% in 2024 and 2.1% in 2025. The ECB now also released a new estimate for 2026, at 1.9%.
The decision keeps the central bank’s key rate at a record high of 4%.
Euro zone year-on-year inflation has moderated from 10.6% in October 2022 to 2.4% in the most recent reading in November. That has put the ECB’s 2% target within grasp, even as officials note the threat that wage pressures and energy market volatility will cause a potential resurgence.
It has also fueled bets on cuts next year, with some analysts and market pricing both suggesting trims could come before the summer. ECB President Christine Lagarde has so far insisted it is too early to think about cuts, saying that key data sets on wages need to be monitored early next year.
European bourses gained ground through Thursday morning, with the regional Stoxx 600 index reaching its highest level since January 2022, while European bonds rallied.
The moves partly reflected the U.S. Federal Reserve’s Wednesday decision to hold rates steady and release the latest “dot plot” rate trajectory from its members, triggering expectations of a dovish pivot from major central banks.
Gains held after the Bank of England also announced a rate hold at midday U.K. time, even as its committee said monetary policy was “likely to need to be restrictive for an extended period of time.”
