The European Central Bank (ECB) is maintaining its interest rates at a record high of 4 percent for now. According to the regulator, inflation hasn’t fallen enough. However, the ECB does suggest that its rates could decrease in the near future.
This marks the fifth consecutive time that the financial regulator has left the interest rate unchanged. This follows a series of unprecedented hikes that the ECB implemented to curb rampant inflation.
According to the ECB board, these increases have indeed led to less steep price rises, such as groceries and other goods. Wage growth has also slowed. However, service prices are still rising too quickly. As a result, inflation hasn’t returned to the desired level of 2 percent.
The ECB does hint at a future reduction. If data indicates that inflation is under control, “it is appropriate to ease monetary constraints,” the ECB says. This refers to a potential interest rate cut.
In recent years, prices of items like energy, fuel, and groceries have surged, leading to financial difficulties for many households. To control inflation, the Central Bank rapidly raised interest rates starting from July 2022.
A higher interest rate makes it more expensive for businesses to borrow money, while it becomes more attractive for consumers to save. This leads to reduced business investment and consumer spending, thereby moderating price increases.
A reduction in interest rates is meant to achieve the opposite effect. However, the ECB believes it’s still too early for such a measure.