ECB kept interest rates unchanged, maintaining the main refinancing rate at 4.50% and the deposit rate at 4.00%, as was widely anticipated. In a significant update, ECB substantially lowered its headline inflation forecast for 2024 from 3.2% to 2.7%. Additionally, core inflation forecasts for 2024 were slightly revised downward from 2.9% to 2.7%.
The new economic forecasts paint a picture of moderating inflation and subdued growth in the coming years. Headline inflation is expected to average 5.4% in 2023, then decrease to 2.7% in 2024, 2.1% in 2025, and 1.9% in 2026. These projections mark a notable adjustment from the September forecasts, which anticipated 5.6% in 2023 and 3.2% in 2024.
Core inflation is also expected to follow a similar downward trajectory, averaging 5.0% in 2023, 2.7% in 2024, 2.3% in 2025, and 2.1% in 2026, comparing to previous forecasts of 5.1% in 2023, 2.9% in 2024, and 2.2% in 2025
On the growth front, ECB’s projections indicate modest economic performance, with growth averaging 0.6% for 2023, 0.8% for 2024, and 1.5% for both 2025 and 2026. These figures represent a downward revision from September forecasts, which predicted 0.7% growth in 2023 and 1.0% in 2024, but 2025 was unchanged at 1.5%.
The central bank reiterated that the current interest rates are positioned to substantially contribute to bringing inflation back to its target, provided they are “maintained for a sufficiently long duration.” The ECB plans to continue following a “data-dependent approach” to determine the “level and duration” of policy restrictions.
