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Borrowing costs will continue to be high, ECB: Interest rates are not expected to change

2024-01-19 12:46:18Biznes SHKRUAR NGA REDAKSIA VOX

Borrowing costs will continue to be high, ECB: Interest rates are not expected

The last meeting of European Central Bank policymakers made it clear that inflation was returning to the target, but without many risks that still warrant a stable policy and high borrowing costs.

The ECB left interest rates unchanged at this meeting and made it clear that there would be no further increases. But it also said it was too early to discuss policy easing, even as markets are mounting pressure for a turnaround to begin in early spring.

In the statement published after the meeting, the ECB emphasized that there was no room for complacency and that it was not time for the Governing Council to lower its vigilance. It was also said to require constant vigilance and patience and to maintain a restraining attitude for some time. This is because it is still too early to be sure that the task has been fulfilled.

Policymakers also concluded that they needed to push back against market expectations for rapid policy easing, even if there was unusual uncertainty about the outlook for inflation and economic growth.

The EU statement said that it became clear that the expectations of the markets will not be met, but instead appealed for more patience in the face of the uncertainties that currently prevail.

Investors already expect 135 basis points of rate cuts this year, a big change from earlier in the week when 150 basis points were estimated. The big move came as a host of policymakers said markets were moving ahead.

Inflation rose to 2.9% last month, as the ECB expected, and the bank forecast price increases in the 2.5% to 2.9% range over the year, falling short of its 2% target until 2025.

Policymakers also concluded that all three of their benchmarks, the inflation outlook, core inflation and policy transmission power, were moving in the right direction, increasing confidence that policy was working as intended.

With just a week to go before the ECB's next policy meeting, the debate has shifted somewhat as policymakers now clearly recognize that the next move is a reduction in borrowing costs, but a wide gap between investors' expectations and policy makers remains real.


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