Due to rising inflation: ECB boss Christine Lagarde leaves interest rates untouched

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European Central Bank (ECB) President Christine Lagarde (68) continues to stick to the interest rate cut. It leaves the key interest rate in the euro zone at 4.5 percent. For the second time in a row, interest rates remained unchanged. So the time for interest rate cuts has not come yet. The ECB Council decided this at its first meeting of the new year in Frankfurt on Thursday.

Low interest rates could help a weakening economy. Inflation in the eurozone rose slightly to 2.9 percent in December 2023 for the first time in months. In November 2023, the inflation rate in the currency was 2.4 percent, the lowest since summer 2021.

10 consecutive interest rate increases

In July 2022, the ECB ended the years of zero and negative interest rates to control high inflation. The central bank increased interest rates ten times in a row. Higher interest rates make loans more expensive, which can slow demand and offset higher inflation rates. But more expensive loans also burden the economy because investments financed with loans become more expensive.

The recent downward trend in inflation provides monetary authorities with the opportunity to loosen monetary policy again. The weakening economy in the Eurozone and Germany, Europe’s largest economy, could benefit from interest rate cuts.

The ECB’s primary goal is to maintain a stable euro. Monetary authorities think this can be achieved if prices do not increase too much: In the medium term, the central bank aims for price stability with a two percent inflation rate. Higher inflation rates reduce consumers’ purchasing power because they are able to pay less for one euro.

Interest rate reduction possible in summer months

At the World Economic Forum in Davos in mid-January, ECB President Christine Lagarde said a rate cut this summer was quite likely. The Frenchwoman also lowered expectations, citing the cyclical dependence of monetary policy.

Next week, the US Federal Reserve (FED) will decide on its next interest rate move on Wednesday. Experts predict that interest rates will not change here either. The Swiss National Bank (SNB) will not decide on the next interest rate move until March. Inflation in Switzerland, which was 1.7 percent in December, is still significantly lower than in the Eurozone.

Source :Blick