European Central Bank makes rate decision
The European Central Bank (ECB) is expected to decide on interest rates today in Frankfurt.
ECB interest rates have jumped in the past two years from 0.5 percent in July 2022 to 4.5 percent in September 2023 to combat the post-Covid and Ukraine War inflation. Rates have remained at this level since September. Inflation peaked in October 2022 at 10.6%, yet reduced to 2.6 percent last month, still dramatically higher than pre-Covid levels, however, close to the ECB’s 2 percent target.
The ECB decision will depend on whether inflation is deemed to have slowed dramatically enough that dropping rates will not aggravate it. Factors such as wage growth in the services sector, geo-economic worries such as the Houthi harassment of cargo in the Red Sea and slow Chinese growth will likely be used by as rationale to maintain rates at current levels.
It is unlikely ECB policymakers will see the current outlook for 2024’s second quarter as a sign of an inflationary drop. The ECB is likely to consider dropping rates at the next meeting in April, if, and only if, inflation shows signs of falling to the 2 percent target.