Inflation under control and the economy holding up: the ECB maintains its interest rates

BrusselsInflation is under control and economic activity is holding up. Given this context, the European Central Bank has decided not to touch interest rates and keep them at 2%. This is the second time this year that the bank has decided not to continue lowering the price of money, after having lowered it up to eight consecutive times.

It is the decision that both markets and analysts expected. As usual, no surprises in Frankfurt. Inflation is now around 2%, as the ECB wanted, and the economies of the countries in the single currency are not doing as badly as initially estimated by economic forecasts, although their gross domestic product (GDP) continues to grow at an anemic pace.

The banking institution's economic forecasts confirm this. "Inflation is currently around the 2% target and the Governing Council's assessment of the inflation outlook remains virtually unchanged," says the ECB's statement issued this Thursday.

The bank's experts predict that price increases will reach 2.1% this year, 1.7% next year, and a slight rise to 1.9% in 2027. As for core inflation, which excludes the most volatile prices of items such as energy and food, it will still be above the ECB's target, at 2.4% this year. However, it will already fall to 1.9% next year and to 1.8% in 2027.

However, the banking institution's experts have significantly revised their growth forecasts for the eurozone upwards. According to their calculations, it would reach 1.2% in 2025, three-tenths of a percentage point higher than what they forecast last June. However, projections for increased economic activity are slightly lower—three-tenths less—and now stand at 1%. As for 2027, the ECB has kept them unchanged at 1.3%.

It should be remembered that rising money prices are the ECB's main tool to curb inflation, which soared after the pandemic and the start of the war in Ukraine. However, it is a double-edged sword and also causes an economic slowdown. Therefore, the bank always seeks balance and, faced with a stable price increase of around 2% and an economy that is healthier than expected, has decided to hold its ground.

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