The European Central Bank will probably no longer increase key interest rates. “The latest inflation figure has made a further interest rate hike unlikely,” ECB Director Isabel Schnabel told the Reuters news agency. The economist had not ruled out further increases just a month ago. But in November, consumer prices in the euro zone surprisingly only rose by 2.4 percent compared to the same month last year. This is the lowest value since July 2021. In October, inflation was 2.9 percent. For comparison: In autumn 2022, inflation climbed to over ten percent.
The restrictive monetary policy is having an effect, said Schnabel. The ECB has raised the key interest rate from zero to 4.5 percent over the past year and a half. The central bank recently refrained from further interest rate increases. The Governing Council of the ECB will meet again on December 14th to discuss key interest rates.
After raising the key interest rate too late in the fight against inflation, the ECB now does not want to take the risk of lowering the key interest rate too early, which could trigger another surge in inflation. The ECB wants to remain flexible. Schnabel therefore does not want to give the financial markets any guidance about the possible course too far in advance. “We were often surprised in both directions,” she said, referring to the inflation data. “Therefore, we should be careful when making statements about events that will take place in six months.” ECB President Christine Lagarde and French central bank chief François Villeroy de Galhau recently said there would likely be no changes to interest rate policy in the next few quarters.
The financial markets seem to doubt these statements. Many observers are already expecting a first interest rate cut in April 2024. In anticipation of this, the stock markets have risen significantly in recent weeks.
Consumers in the euro zone expect inflation to reach four percent within 12 months, according to an October survey published by the central bank on Tuesday. Those surveyed expect inflation to rise by 2.5 percent within three years. The ECB is aiming for an inflation rate of two percent as the optimal level in the medium term.