The European Central Bank (ECB) is on the brink of an interest rate cut this summer as it grapples with the impact of past rate hikes on inflation and demand. At its meeting in Frankfurt today, the ECB kept its main lending rate unchanged at 4.5%, but hinted at potential cuts in the near future.
The ECB cited the lingering effects of previous rate increases on demand, which have contributed to pushing down inflation. However, strong domestic price pressures, particularly in the services sector, are keeping inflation levels elevated.
ECB keeps interest rates unchanged
The decision comes amidst rising inflation in the US, where annual consumer price inflation reached 3.5% in March. This has led analysts to speculate that the Federal Reserve may delay rate cuts, potentially influencing the ECB’s decision-making process in the EU.
Inflation in the eurozone
Oil prices have also been impacted by the inflation figures, with prices slipping as expectations for rate cuts cool. Despite this, tensions between Israel and Iran have kept prices near six-month highs, with Brent crude futures down to $89.99 a barrel.
Closely monitoring wage inflation in the eurozone
The ECB is closely monitoring wage inflation in the eurozone, expressing concerns that rising wages could fuel higher prices. While most measures of underlying inflation are easing and wage growth is moderating, the regulator remains cautious about the potential impact on prices.
Inflation in the eurozone reached 2.9% last month, a slight decrease from the previous month. However, annual inflation has cooled since March 2023, providing some relief to consumers.
Interest rate reductions are expected to benefit tracker mortgage customers the most, while those coming off fixed-rate contracts may see increases in their monthly repayments. EU experts are skeptical that banks will quickly pass on rate cuts to these customers, highlighting the complexities of monetary policy in a changing economic landscape.
