Despite economic and political instability worldwide, the European Central Bank (ECB) kept interest rates at 2% for the fifth consecutive time. The ECB will not change them in the foreseeable future unless the outlook for growth and inflation in the euro area undergoes significant changes.
The last adjustment to interest rates took place in June last year, at the height of the “tariff war” launched by Donald Trump. Since then, higher-than-expected growth in the euro area and inflation hovering around the 2% target have allowed the ECB to opt for stability.
Factors supporting the economy
- As members of the Governing Council note, this growth is supported by low unemployment,
- the strength of private-sector balance sheets,
- the gradual rollout of government spending on defense and infrastructure,
- as well as the favorable effects of previous interest-rate cuts.
Euro exchange rate and market expectations
Even the shocks at the beginning of the year did not force this European institution—after many years of striving to achieve the desired price stability and facing minimal pressure to make abrupt decisions—to abandon its choice. In addition, in recent days, the threat of an overly strong euro has apparently eased, as indicated by its exchange rate against the U.S. dollar.
Although the ECB does not set a specific exchange-rate target, it monitors currency-market fluctuations insofar as they may affect inflation. In this case, an excessively strong currency could put downward pressure on price growth, pushing it away from the target.
Some members of the ECB’s leadership are no longer concerned about a return to interest-rate hikes in the near future. At
