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BusinessThe ECB continues without giving in to the drop in inflation and...

The ECB continues without giving in to the drop in inflation and leaves rates at 4.5%, a maximum in 2008

The European Central Bank (ECB) does not ease the pressure on families’ ability to consume or companies’ ability to invest and hire. The governing council of the monetary institution continues to distrust the drop in inflation and decided this Thursday to maintain official interest rates at 4.5%, a maximum in 2008.

“Since the last meeting in January, inflation has continued to decline,” he acknowledges instead in his statement. “In the latest ECB expert projections, inflation has been revised downwards, in particular for 2024, mainly reflecting a lower contribution from energy prices. “Staff now projects that inflation will average 2.3% in 2024, 2.0% in 2025, and 1.9% in 2026,” he continues. The theoretical objective is, effectively, 2%.

We will have to wait until April (when the ECB’s next monetary policy meeting is held) or rather June (when the next one will take place, according to the institution’s calendar), to see the first drop in the ‘price’ of reference money. in the eurozone.

That is, so that households and companies feel the first relief in financing conditions (through the rise of the Euribor, for example) since, in July 2022, the ECB undertook the most aggressive monetary austerity cycle in its history, increasing interest rates from 0% to 4.5% where it left them in September, until today. A strategy that seeks to suffocate the economy to control inflation and that runs the risk of achieving this.

An aggressiveness that is increasingly questioned, even internally, because the moderation of price increases is already a fact. In February, inflation was reduced to 2.6% compared to the same month last year in the eurozone as a whole (in Spain it was 2.8%). And sources from the ECB itself have admitted to that the jumps that may be seen in the coming months due to the withdrawal of stimuli such as the reduction in VAT on electricity (in our country, in March it went from 10% to 21%) are contemplated and “are acceptable.”

However, the debate between the most aggressive positions of the institution’s governing council (led by Germany) and those who think that “we should not run [con las bajadas de tipos], but don’t expect too much” continues to fester. The ‘hawks’ continue to ask that improvements in salaries and price tensions in the service sector (especially in food, hospitality and other leisure sectors) be monitored.

The main body of the monetary institution is made up of the governors of the central banks of each euro country (among them the Spanish Pablo Hernández de Cos) and the executive committee, to which President Christine Lagarde and Vice President Luis de Guindos belong. , among others. “Inflation projections excluding energy and food have also been revised downwards and average 2.6% for 2024, 2.1% for 2025 and 2.0% for 2026. Although most core inflation indicators have continued decreasing, pressures on domestic prices remain high, in part due to strong wage growth,” the statement said this Thursday.

The roadmap of the European Central Bank (ECB) would include up to four cuts in official interest rates in 2024. The “central scenario” of its governing council contemplates that the cycle of cuts in the official ‘price’ of money would begin in June and it would take it from the current 4.5% to 3.5% or 3.25% at the end of the year, as has learned. But neither Lagarde nor any other leader is going to explicitly confirm it yet.

The reason why Lagarde and her people have agreed to “not tie their hands” in their communications is the fear of a new, unexpected rise in inflation. In fact, this would be the only reason that would delay the first rate cut in the eurozone until after June.

“Financing conditions are restrictive and previous increases in interest rates continue to weigh on demand, which is helping to reduce inflation. Staff has revised its 2024 growth projection downward to 0.6%, and economic activity is expected to remain subdued in the near term. From then on, staff expect the economy to recover and grow at 1.5% in 2025 and 1.6% in 2026, supported initially by consumption and then also by investment,” the ECB develops in its report. this Thursday.

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