The ECB’s Monetary Policy and the Future of Inflation
The European Central Bank (ECB) uses the deposit rate (interest rate on deposits) to guide its monetary policy direction. In a recent press release, the ECB stated that the downward trend in inflation is progressing as expected. Inflation has been evolving largely in line with forecasts and is projected to approach the ECB Governing Council’s medium-term goal of 2 percent over the course of this year.
The ECB indicates that most measures of underlying inflation suggest that inflation is likely to settle around the target level in a sustained manner. Domestic inflation remains elevated, primarily due to wages and prices in certain sectors adjusting to the previous surge in inflation with significant lag. However, wage growth is moderating as expected, and profits are partially offsetting the effects on inflation.
The ECB Governing Council is determined to ensure that inflation stabilizes durably at the medium-term target of 2 percent. A data-dependent approach with decisions made from meeting to meeting to determine the appropriate monetary policy direction will be followed, according to the ECB.
Here is a comparison of ECB interest rates:
| ECB, % | January 2025 | Consensus | December 2024 |
|—————–|————–|———–|—————|
| Deposit Rate | 2.75 | 2.75 | 3.00 |
| Refinancing Rate| 2.90 | 2.90 | 3.15 |
| Lending Rate | 3.15 | 3.15 | 3.40 |
Data consensus from Bloomberg.
The ECB’s commitment to maintaining price stability and achieving its inflation target is crucial for the Eurozone’s economic outlook. As the ECB continues to navigate the complex landscape of monetary policy, investors and policymakers alike will closely monitor developments to assess the impact on financial markets and the broader economy. Stay tuned for more updates on the ECB’s monetary policy decisions and their implications for the future of inflation in the Eurozone.