ECB likely to keep interest rates at record highs at March meeting

President of European Central Bank, Christine Lagarde, holds a mobile device prior to a press conference after an ECB's governing council meeting in Frankfurt, Germany. - Copyright Michael Probst/Copyright 2024 The AP. All rights reserved

By Indrabati Lahiri

Published on 07/03/2024 - 11:09•Updated 13:23

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The ECB has been vocal about the need for more conclusive evidence of declining inflation and cooling labour markets, before cutting rates.

The European Central Bank (ECB) will announce its March interest rate decision on Thursday afternoon and is expected to keep interest rates at a 22-year high of 4.5% for the fourth time in a row.

However, upcoming forecasts by the bank's economic staff are likely to show decreased economic growth and falling inflation for the coming year. This could potentially put more pressure on Lagarde to cut interest rates in the near future.

David Powell, senior euro-area economist for Bloomberg Economics, as reported by Bloomberg said: 'We expect Lagarde to use downward revisions to the forecasts of the ECB's staff economists to set the stage for a cut, but she'll probably argue that policymarkers can't move until they have more data on wages."

Most analysts foresee an ECB rate cut by June this year, once there is more information about whether European labour markets are cooling or not. However, with other major central banks such as the US Federal Reserve and the Bank of England also seemingly in no hurry to cut rates, the ECB may opt to push back monetary loosening as well.

So far, even though inflation is slowly returning towards the 2% target, the ECB has been vocal about the need for more conclusive proof of falling inflation, before any decisive rate cutting steps can be taken. It has also warned of the dangers of rebounding inflation, highlighting that it may be better to keep interest rates higher for a little longer, to avoid this situation.

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