ECB keeps interest rates unchanged, acknowledges slowdown in inflation

European Central Bank kept interest rates unchanged as expected on Thursday, but acknowledged that inflation was falling faster than previously thought, which could pave the way for a rate cut later this year.

The ECB has kept borrowing costs at record high levels since September, and has so far resisted any call to cut interest rates, even as policymakers have now publicly acknowledged that such a move is coming and only its timing is up for debate.

The Central Bank said in a statement, “Inflation expectations were revised downward, especially for 2024, led by the decline in energy prices.”

The more moderate outlook comes as the bank lowered its inflation forecast for the second straight quarter, setting its price growth target at 2.3 percent this year and at a target level of 2 percent next year.

Inflation has been declining for months, with energy prices falling and the 20-nation euro zone economy stagnating for the second year in a row.

But underlying price pressures, driven by wage increases, remain uncomfortably high, raising the risk that inflation will change its downward trajectory.

That is why the ECB insists that interest rate cuts will only happen when it is sure that wage controls are firmly established and that the inflation slowdown is permanent.