The ECB meeting kept rates unchanged at 4.5% for the third consecutive time. Lagarde did not anticipate anything about cuts to the cost of borrowing.
ECB meeting: interest rates remain stable at 4.5% after yesterday’s meeting. In the official statement on today’s monetary policy decision, a certain optimism emerged regarding the trend of inflation in the medium term.
The monetary tightening carried out so far is working according to the board: “Tight financing conditions are holding back demand and this is helping to push inflation down”. The ECB then reiterated that every decision will depend on future data and that the Quantitative Tightening, or the gradual decrease in bond purchases.
Regarding the Pepp, what was established in December is confirmed: reinvestments of the capital repaid on securities maturing during the first half of 2024 and then reducing the portfolio by 7.5 billion euros per month on average.
No mention of the prospect of rate cuts. Lagarde underlined in the press conference that all the members of the board considered any discussion on decreasing the cost of money as premature now. The ECB meeting today, therefore, did not reveal anything about the next monetary policy moves.
ECB meeting, unchanged rates, and data dependence. What did Lagarde say?
There were no surprises from the January ECB meeting, which effectively confirmed what was established in December and all the analysts’ expectations. Rates are still stuck at levels that..."maintained for a sufficiently long period, will provide a substantial contribution to achieving this objective", as specified in the official document and by Lagarde herself in the conference.
In summary, the governor launched messages of cautious optimism about the near future of the Eurozone, while recognizing the risks deriving from an agitated geopolitical situation, from a certain stagnation of the region in the fourth quarter of 2023 and from the wage growth under observation.
These are the highlights of the conference:
- in terms of data, we see that the hard data is weak (note industrial production and retail sales). If we look at PMIs, we are seeing some encouraging numbers;
- the ECB is carefully examining a range of data on wage growth, including from the Indeed job site and its own salary negotiations tracker. The hope is that any further wage increases will be absorbed by company profits so as not to create second-round inflationary effects;
- inflation is expected to decline further in 2024. Domestic price pressure is high, but some measures have started to ease and long-term inflation expectations mostly stand around 2% Lagarde warned that the bank will take decisions based on the latest macroeconomic data rather than making long-term promises. In a sign of optimism, the ECB statement omitted the earlier phrase that “domestic price pressures remain elevated” and noted that high rates are helping to push inflation lower. But it warned that financing costs will remain high “for as long as necessary” without offering a future timetable.
Original article published on Money.it Italy 2024-01-25 15:55:00. Original title: Riunione Bce oggi: tassi ancora fermi al 4,5%. Prematuro parlare di tagli, dice Lagarde
