There ECB confirmed today interest rates still stuck at 4.5% and a gradual withdrawal of the PEEP pandemic plan, which will continue to reinvest the capital of the securities that have reached maturity for the first part of 2024. A decision that the Frankfurt Institute took on the basis of the data analyzed and the new projections macroeconomic indicators that indicate a slowdown in growth and also a persistence of inflationary pressures of an internal nature (salaries)
Growth slows
The ECB experts have revised downwards the projection of growth for 2024 at 0.6%; economic activity is expected to remain moderate in the short term, and then grow by 1.5% in 2025 and 1.6% in 2026supported initially by consumption and later also by investments.
“Consumers continue to slow down purchases – explained Lagarde – and companies export less in response to a slowdown in foreign demand and the loss of competitiveness on international markets”.
“The economic surveys indicate a gradual recovery during this year“, underlined the number one of the Eurotower, explaining that the reduction in inflation and the increase in wages will help to support real incomes and therefore growth, while the effects of past rate increases will tend to “gradually attenuate”.
Inflationary pressures persist
In the latest ECB projections inflation was also revised downwardsin particular for 2024, mainly due to the lower contribution of energy prices. Experts are now pointing to inflation on average 2.3% in 2024, 2% in 2025 and 1.9% in 2026. Inflation excluding energy and food was also adjusted downwards, to an average of 2.6% in 2024, 2.1% in 2025 and 2% in 2026.
But Lagarde signaled that inflationary pressures persist internal, linked to wage growth, reiterating “we need more data and evidence and we know these are coming in the next few months, we’ll know a little more in April and much more in June“. A signal that would seem to strengthen the prospect of a rate cut in June.
Lagarde: “We are independent of the Fed”
Going into more detail on the topic of decisions taken today by the BoardLagarde confirmed “we didn’t discuss rate cuts in this meeting, but we have just started arguing to roll back the restrictive policy” and then added that “the ECB will act independently” of the Fed.
“We will do what we have to do, when we have to do it,” reiterated the number one of the Frankfurt Institute, adding that “if the conditions are met and our diagnosis says that monetary policy has been restrictive long enough, we will take our decision”.
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