Mon, Jul 22, 2024

EURO: ECB Keeps Rates Unchanged, Reduces Inflation and Growth Projections

The ECB has maintained the interest rates at same 4.50%, forecasting of inflation and GDP Growth is lowered than expected.

Inflation is expected to easing at 2.3% from 2.7% in 2024, GDP growth will be down to 0.60% in 2024 from 0.80% expected.

Euro pairs moved down after the ECB monetary policy meeting today.

EURUSD is moving in Descending channel and market has reached lower high area of the channel

EURUSD is moving in Descending channel and market has reached lower high area of the channel

ECB Holds Rates, Cuts Growth and Inflation Projections

European Central Bank policymakers opted to keep interest rates unchanged on Thursday while revising down their annual growth and inflation forecasts. The updated staff projections anticipate a 0.6% economic growth rate in 2024, down from the previous estimate of 0.8%. In contrast, inflation projections for the year were adjusted to an average of 2.3%, a reduction from the earlier forecast of 2.7%. Looking forward, the staff foresees inflation aligning with the ECB’s 2% target in 2025, subsequently moderating to 1.9% in 2026.

The ECB’s more cautious outlook has increased speculation in the market about potential rate cuts occurring in the summer of this year. The euro dipped 0.35% against the British pound following the announcement. Growth projections for 2025 and 2026 were set at 1.5% and 1.6%, respectively, indicating an improvement in the euro zone’s economic activity as it emerges from stagnation. Germany, the largest economy in Europe, has already revised down its growth forecast for 2024 from 1.3% to 0.2%.

The ECB has maintained its record-high rates since September, and investors have been closely monitoring the March projections for insights into potential rate cuts. The key rate currently stands at 4%, up from -0.5% in June 2022 after a series of 10 hikes. While expectations lean toward cuts in June, ECB staff emphasizes the importance of assessing spring wage data before making a decision.

Euro zone inflation eased to 2.6% in February, down from January’s 2.8%, reflecting progress toward the ECB’s 2% target. However, the core inflation figure, excluding energy, food, alcohol, and tobacco, remained at 3.1%.

ECB forecasts for inflation are transitory not permanent so 2.2 in 2021 will step down to 1.7 in 2022 and 1.5 in 2023.

Antonio Serpico, senior portfolio manager at Neuberger Berman, described the decision as “relatively dovish,” highlighting the downward revisions in growth and inflation forecasts. He anticipates rate cuts starting in June, with reductions of 25 basis points per meeting, totaling 150 basis points or more this year. European bond yields also declined following the update, signaling increased expectations of rate cuts, with the German 10-year yield down by 7 basis points.

EURO: ECB Maintains Record Key Interest Rate

The ECB has maintained the interest rates at same 4.50%, forecasting of inflation and GDP Growth is lowered than expected.

Inflation is expected to easing at 2.3% from 2.7% in 2024, GDP growth will be down to 0.60% in 2024 from 0.80% expected.

Euro pairs moved down after the ECB monetary policy meeting today.

ECB Keeps Record Interest Rate Amid Inflation Concerns

Euro GDP

The European Central Bank (ECB) opted to maintain its key interest rate at a record high, awaiting further confirmation that inflation is under control. The decision, announced on Thursday, comes amid global efforts by central banks, including the US Federal Reserve, to assess whether inflation is subdued enough to consider rate cuts. While various measures of underlying inflation have eased, the ECB emphasizes that domestic price pressures persist, driven in part by strong wage growth. Analysts’ expectations for an ECB rate cut have shifted towards a potential trim in June, with close attention to President Christine Lagarde’s upcoming press conference for insights into the ECB’s future actions. The ECB raised rates from below zero to 4% between July 2022 and September 2023 to counter double-digit inflation resulting from pandemic-related challenges and the energy crisis after Russia’s invasion of Ukraine. The central bank’s focus on inflation management is crucial, balancing the need to control rising prices with the potential impact on economic growth. Despite concerns about a sluggish economy in the Eurozone, the ECB highlights the importance of strong employment rates, maintaining the lowest unemployment level since the introduction of the euro in 1999.

EURUSD has broken box pattern in upside

EURUSD has broken box pattern in upside

The decision to hold rates reflects a cautious approach to the external shocks impacting Europe, such as the loss of cheap energy from Russia and a broader global trade slowdown. The ECB’s attention to inflation, which stood at 2.6% in February, emphasizes the need for careful consideration in navigating the last mile towards its target. While spikes in food and energy prices have eased, inflation has extended to services, with wages rising as workers seek compensation for lost purchasing power during the inflation surge. The ECB’s measured approach is in line with global central banks’ strategies, where confidence in inflation control remains a key determinant for future rate decisions.

EURO: Central Bank’s Monetary Policy Decisions

The ECB has maintained the interest rates at same 4.50%, forecasting of inflation and GDP Growth is lowered than expected.

Inflation is expected to easing at 2.3% from 2.7% in 2024, GDP growth will be down to 0.60% in 2024 from 0.80% expected.

Euro pairs moved down after the ECB monetary policy meeting today.

The Governing Council decided to maintain the three key ECB interest rates. Inflation has decreased, and staff projections indicate a downward revision, especially for 2024, primarily due to a reduced contribution from energy prices. Projected inflation now stands at 2.3% in 2024, 2.0% in 2025, and 1.9% in 2026. Inflation excluding energy and food is projected to average 2.6% in 2024, 2.1% in 2025, and 2.0% in 2026. Despite easing underlying inflation measures, domestic price pressures remain high, partly due to robust wage growth. Financing conditions remain restrictive, and past interest rate hikes continue to impact demand, contributing to lower inflation.

The growth projection for 2024 has been revised down to 0.6%, with economic activity expected to stay subdued in the near term. Subsequently, the economy is anticipated to pick up, growing at 1.5% in 2025 and 1.6% in 2026, supported initially by consumption and later by investment.

EURUSD climbed up to 3.8

The Governing Council is committed to bringing inflation back to its 2% medium-term target promptly. Current interest rates are deemed conducive to this goal, and future decisions will maintain sufficiently restrictive levels for as long as necessary. The Council will adopt a data-dependent approach, considering the inflation outlook, economic and financial data, underlying inflation dynamics, and monetary policy transmission strength.

Key ECB interest rates (main refinancing operations, marginal lending facility, and deposit facility) remain unchanged at 4.50%, 4.75%, and 4.00%, respectively.

Regarding asset purchase programs, the APP portfolio is declining, with no reinvestment of principal payments. For the PEPP, reinvestments will continue in H1 2024, and the portfolio will decrease by €7.5 billion per month on average in H2 2024, with reinvestments ending by the year’s end.

The Governing Council monitors the impact of targeted lending operations’ repayment on its monetary policy stance as banks repay borrowed amounts.

EURUSD is moving in box pattern and market has fallen from the resistance area of the pattern

EURUSD is moving in box pattern and market has fallen from the resistance area of the pattern

The Council is prepared to adjust all instruments within its mandate to ensure inflation returns to the 2% target and to safeguard monetary policy transmission. The Transmission Protection Instrument is available to counter market dynamics threatening transmission across euro area countries, enhancing the Council’s ability to fulfill its price stability mandate effectively.


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