ECB weighs interest rate decisions

ECB sees stronger case for rate cuts: Minutes

By Ahmed Azzam | @3zzamous | 4 April 2024

Market close
  • ECB Inflation forecasts for 2024-2026 slightly lowered; core rates adjusted.

  • US jobless claims hit a 2-month high at 221,000, exceeding expectations.

  • Increase in US unemployment claims indicates potential labor market cooling.

In the midst of fluctuating economic indicators, the European Central Bank (ECB) finds itself walking a tightrope. During its March assembly, the bank opted to keep interest rates stationary, a decision underscored by a complex mix of recessionary fears and stubbornly high inflation rates. The ECB's main refinancing operations rate stays at a 22-year high of 4.5%, with the deposit facility rate also holding firm at an unprecedented 4%.

Inflation forecasts adjusted

A recent review has led the ECB to adjust its inflation forecasts, now anticipating an average inflation rate of 2.3% in 2024, a slight decrease from its previous projection of 2.7%. The forecast for 2025 has been adjusted to 2.0% from 2.1%, with the 2026 prediction slightly reduced to 1.9%. Core inflation expectations have also been recalibrated, setting the stage for continued careful monetary policy adjustments.

Economic growth outlook

The ECB has revised its growth projection for 2024 to just 0.6%, highlighting expectations for continued economic sluggishness in the near term. However, the outlook brightens with projected expansions of 1.5% in 2025 and 1.6% in 2026, suggesting a gradual return to more robust economic activity.

US job market shows signs of strain

Across the Atlantic, the US labor market has exhibited unexpected signs of strain. Initial jobless claims have risen to a two-month high of 221,000 for the week ending March 30th, surpassing analysts' predictions. This uptick suggests the labor market's resilience may be starting to wane under the weight of prolonged high interest rates.