As of: March 7, 2024, 4:10 p.m
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The ECB in Frankfurt am Main.
© Boris Roessler/dpa
The interest rate cut longed for by the economy has not materialized for the time being.
The ECB's latest forecasts could pave the way for a change of course in June.
Frankfurt/Main - The European Central Bank (ECB) is waiting to cut interest rates for the first time since the summer of 2022, despite a faster decline in inflation.
A change of course could take place at the meeting on June 6th, as central bank President Christine Lagarde indicated on Thursday in Frankfurt after the meeting of the ECB Council.
The recent development of the inflation rate makes the euro currency watchdogs more confident, but “not sufficiently confident,” said Lagarde.
“We clearly need more evidence and more data, we will know a little more in April, we will know a lot more in June.” She clarified: “We did not discuss a rate cut in this meeting.
We have just started discussing the withdrawal of our restrictive stance.” Economists do not expect the first interest rate cut until June at the earliest, but the pace could be slower than the market was hoping for.
Interest rates remain unchanged for the time being
On Thursday, the ECB Council left the key interest rates in the currency area of the 20 countries unchanged for the fourth time in a row: the most important interest rate for supplying the banking industry with fresh central bank money remains at 4.5 percent.
The deposit interest that banks receive for parked funds remains 4.0 percent.
In July 2022, the ECB ended the years of zero and negative interest rates in order to get inflation, which had temporarily reached record levels, under control.
The central bank raised interest rates ten times in a row.
The fact that loans therefore cost more can slow down demand and counteract high inflation rates.
However, more expensive financing is also a burden for companies and private investors.
In view of the weakening economy, there have recently been increasing calls to lower interest rates again.
Inflation on the decline
In addition, the inflation rate in both the euro area and Germany has recently been trending downwards.
In the euro area, consumer prices were 2.6 percent higher in February 2024 than a year earlier.
According to preliminary data, annual inflation in Germany reached 2.5 percent in February, the lowest level since June 2021.
Overall, the ECB's medium-term target of two percent is now within reach.
At this value, the monetary authorities see their primary goal of ensuring a stable euro and thus maintaining people's purchasing power fulfilled.
Lagarde emphasized: “I’m not saying we wait until we get to two percent before we make a decision.”
Because: Core inflation without energy and food is much tougher.
“Inflation has not yet been defeated,” warned the chief economist of the BVR banking association, Andreas Bley.
The price increase for services, which also reflects the continued high rise in wages and salaries, is still comparatively high.
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Business also expressed approval for the central bank's initially unchanged course.
“The continued falling inflation rate is a glimmer of hope for companies.
But it is still too early to give the all-clear,” said DIHK Managing Director Martin Wansleben.
“If the encouraging downward trend in the inflation rate continues, an easing of monetary policy should then be possible.
This would be good news, particularly for companies in the construction industry, which suffer considerably from high building interest rates, and for all companies that want to invest.”
New forecasts: Inflation is falling faster
The ECB now expects an inflation rate of 2.3 percent for the current year.
In its forecast presented in December, the central bank had assumed 2.7 percent.
A rate of 2.0 (December forecast: 2.1) percent is expected in 2025.
Another argument in favor of interest rate cuts is that the economic prospects in the euro area have deteriorated.
The ECB expects only 0.6 percent growth this year, compared to 0.8 percent predicted in December.
The gross domestic product (GDP) is expected to increase more strongly again in 2025 (1.5 percent) and 2026 (1.6 percent).
Savings interest rates have already fallen again
Many financial institutions have already priced in the prospect of falling key interest rates in their fixed-term deposit offerings.
According to a Verivox analysis, fixed-term deposits with a term of two years available nationwide currently yield an average of 2.91 percent; at the beginning of December it was 3.36 percent.
A good fifth (21 percent) of the 758 banks and savings banks in Germany whose conditions were evaluated by the comparison portal pay either no interest at all (57 institutions) or only low interest of 0.01 percent to 0.25 percent (102 institutions) on the current account ).
According to the calculations, anyone who puts 10,000 euros into a current account at banks active across the country currently receives an average interest rate of 1.75 percent.
Savings banks and Volksbanks each pay an average of 0.62 percent.
“Of course, regional credit institutions with an expensive branch network cannot offer the highest interest rates in the entire market,” said Verivox managing director Oliver Maier.
“But from the savers’ point of view, it is difficult to understand that in the current historic period of high interest rates, the vast majority of Volksbanks and savings banks do not even have one percent.” dpa