The European Central Bank maintained all three main interest rates

The European Central Bank (ECB) maintained all three main interest rates at its meeting on Thursday: the base rate remained at 4.5%, the deposit rate – 4%, and the margin lending rate – 4.75%. The head of the regulator, Christine Lagarde, noted the weakness of the euro area economy in the fourth quarter of 2023 and not too high expectations for its growth in the coming months. However, there is no talk yet about easing the monetary policy (MCP) of the ECB: it has promised that, despite the remaining risks, rates will be record high “as long as necessary.”

Following the meeting on January 25, the ECB again left key interest rates unchanged. The base rate, deposit rates and margin lending rates have been maintained at 4.5%, 4% and 4.75% respectively. Solution The eurozone central bank’s move was expected: Signals that monetary policy will remain tight in the near future were contained in the minutes of its December meeting published last week.

From the statements of Christine Lagarde it follows that the Central Bank is generally satisfied with the current rate of slowdown in inflation. Although price growth in the euro area accelerated slightly in December 2023 for the first time since April (to 2.9% from 2.4% in November), core inflation (excluding energy and food prices) continued to decline: to 3.4% in December after 3.6% in November.

Inflation is expected to slow throughout the year – according to ECB estimates, tight monetary policy continues to put serious pressure on demand. Long-term expectations for price growth are close to the 2% mark, to which the ECB expects to reduce inflation.

The main risks include rising prices due to the development of the conflict in the Middle East and the complexity of logistics due to the situation in the Red Sea.

At a press conference on Thursday, Ms Lagarde acknowledged weakness in the euro zone economy in the fourth quarter of 2023. However, for now we are talking about stagnation, and not about a technical recession, which leading indicators pointed to in early January. Let us recall that preliminary data indicate that euro area GDP continued to decline in the fourth quarter after contracting by 0.1% in the third (see “Kommersant” dated January 9). An accurate assessment of the situation will be given in February.

According to Christine Lagarde, much cannot be expected from the euro area economy in the near future: growth rates will be constrained by both the more serious-than-expected consequences of the monetary policy tightening cycle and the general weakness of the global economy in general and trade in particular. At the same time, some indicators, according to her, indicate the possibility of more active growth in the future.

We can talk about the PMI industrial business activity index (calculated by S&P Global): in January, the indicator rose to a ten-month high of 46.6 points (44.4 points in December 2023), which is explained by an increase in the number of export orders. However, indices in both the industrial and service sectors and the composite PMI of the euro area still remain below the 50 point mark, which separates the growth of business activity from its decline.

Despite the remaining risks, the ECB expects to keep rates at current levels “as long as necessary.” The message on the regulator’s website emphasizes that decisions will continue to be made based on statistical data. At the recent World Economic Forum, Ms. Lagarde spoke about a possible reversal of monetary policy by the summer – she gave the same forecast on Thursday. “We have a consensus that it is too early to talk about reducing rates,” concluded Christine Lagarde.

Kristina Borovikova