The European Central Bank held interest rates steady for a fifth meeting, while sending its clearest signal yet that cooling inflation will soon allow it to commence cuts.
The deposit rate was left at a record-high 4%, as overwhelmingly predicted by a Bloomberg poll in which only one of 62 economists saw a decrease. But the Governing Council added wording to its accompanying statement flagging a reduction, should updated economic forecasts in June signal sufficient space to do so.
"If the Governing Council's updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission were to further increase its confidence that inflation is converging to the target in a sustained manner, it would be appropriate to reduce the current level of monetary policy restriction," the ECB said Thursday.
Traders earlier pared expectations for ECB easing, pricing just under three quarter-point rate cuts for 2024. The euro slipped before the decision, adding to a 1.1% loss on Wednesday — the largest daily decline since March 2023.
Emboldened by fading inflation across the 20-nation euro area, the ECB is zeroing in on a first rate cut since 2019 at its next meeting in June. Other central banks are less certain, with another overshoot in US consumer prices for March fueling bets that the Federal Reserve will have to wait longer to start loosening monetary policy.
There are few such concerns for the ECB, which saw inflation fall a touch short of estimates last month, at 2.4%. While underlying pressures remain elevated and services costs are still rising by 4%, figures due in the coming weeks may confirm a moderation in the wage gains that are driving such stickiness.
President Christine Lagarde will hold a news conference at 2:45 p.m. in Frankfurt to elaborate on this week's decisions.
Lagarde said last month that if core inflation — which excludes volatile items like food and energy costs — continues to behave as forecast, officials may be able to move into the "dialing-back phase of our policy cycle and make policy less restrictive."
The would come as a relief for the region's economy, which has barely registered any growth for more than a year. The latest warning came this week as the ECB's quarterly lending survey revealed an unexpected slump in corporate loan demand at the start of 2024 — damping expectations of an imminent recovery in output.
Source : Bloomberg
