The ECB maintains rates at 4.5% and warns that it is premature to talk about cuts

Frankfurt (Germany), Jan 25 (EFECOM).- Jan 25 (EFECOM).- The European Central Bank (ECB) has met expectations and has kept interest rates at 4.5% for the third consecutive time, at time that has warned that it is still premature to discuss possible drops.

The Governing Council of the organization, which met this Thursday in Frankfurt for the first time in 2024, has also decided to leave the credit facility – the one that lends to banks overnight – unchanged at 4.75% and the deposit facility – which remunerates excess overnight reserves – at 4%.

Interest rates, therefore, will begin the year as they ended it, at their highest level since 2001, in a context of contraction of the economy and containment of underlying inflation.

Despite meeting her forecasts, the president of the ECB, Christine Lagarde, assured in the press conference after the council meeting that there is consensus that it is premature to address possible rate cuts.

“There was a consensus that it would be premature to discuss rate cuts,” said Lagarde, who refused to give a timetable in this regard and recalled that the next decisions will be made “based on the data.”

However, Lagarde has reaffirmed her words from a week ago, when she assured that it was likely that this would be discussed in the summer: “I stand by what I have said, not what others have said I have said.”

The ECB has highlighted that, despite the temporary rise in inflation due to energy prices, the underlying inflation – that which does not take into account energy and fresh food because they are more volatile – has continued its downward trend.

Inflation rose five tenths in December compared to November and closed 2023 at 2.9%, although core inflation fell two tenths, to 3.4%, according to data from the community statistics office, Eurostat.

According to the ECB, previous rate increases continue to be strongly transmitted to financing conditions, which is slowing demand and contributing to reducing inflation.

Regarding its effect on the economy, Lagarde has assured that her data indicates “short-term weakness”, but that it will return to the path of growth in the future.

The eurozone is currently going through a moment of economic weakness and the ECB has already warned on other occasions of the possibility of a technical recession in the second half of 2023, after GDP fell by 0.1% in the third trimester.

In the case of risks, Lagarde has highlighted the dangers associated with geopolitical tensions, in particular “the unjustified war against Ukraine and the tragic conflict in the Middle East.”

In addition, he has assured that they are being cautious and watching carefully the attacks by the Houthi rebels against civilian shipping in the Red Sea, which are increasing transportation costs, but with a moderate impact for the moment.

In her maxim of being dependent on data, Lagarde has indicated that in the coming months the ECB will have “a lot of new information” and has focused on the new projections that the organization will publish in March, in addition to the inflation data. January and February and salaries.

In this sense, Lagarde has assured that the council will monitor the impact that the salary reviews at the beginning of the year may have on inflation and has recalled that around 40% of collective negotiations take place on these dates.

“We are in January and the first quarter ends in March. It is very premature to anticipate what our predictions are going to be,” he stated, before recalling that rates will be “at sufficiently restrictive levels for as long as necessary” and that they will not stop until they are sure that inflation reaches 2%.

Eurozone interest rates are at their highest level since 2001 after the ECB raised them uninterruptedly on ten occasions from July 2022 to September 2023, with increases that have ranged between 25 and 75 points. basics.

A cycle of rising money prices that the organization put a stop to on October 26, when it kept them at 4.5%, a level that it extended for the third consecutive time this Thursday. EFECOM


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