On Thursday, the European Central Bank (ECB) decided to maintain its key interest rates, while simultaneously reducing the inflation and growth forecast for the Eurozone for the current year. The decision was made by the Governing Council, under the guidance of ECB President Christine Lagarde. Essentially, the primary refinancing rate remained at 4.50%.
Similarly, the deposit facility rate was held at an all-time high of 4.00%, and the lending rate stood firm at 4.75%. The ECB also presented the most recent staff projections, indicating downgrades to both inflation and growth forecasts for the Eurozone.
The reduction for the current year is primarily due to decreasing energy prices. According to the ECB Staff's projections, the inflation rate is estimated to average 2.3% this year, 2.0% next year and 1.9% in 2026. Core inflation, which disregards energy and food, is predicted to average 2.6% in 2022, 2.1% in 2025 and 2.0% in 2026.
While many inflation indicators have further eased, domestic price pressures remain elevated, partly due to significant wage growth. The economic activity is projected to remain sluggish in the short term due to rising interest rates curbing demand. Consequently, the growth forecast for this year has been minimised to 0.6% by the ECB Staff. Growth is anticipated at 1.5% next year and 1.6% in 2026, initially propelled by consumption and later by investment.
The bank stated that the Governing Council is committed to ensuring that inflation returns to its 2% medium-term goal in an expedient manner. If the current ECB interest rates are sustained over a significant duration, they are expected to significantly contribute to this objective. Future decisions by the Governing Council will guarantee that policy rates adequately restrict for as long as necessary.
Lastly, the central bank affirmed that decision-makers would continue to use a data-based approach to determine the suitable level and duration of restriction.
