The European Central Bank (ECB) announced that it would hold interest rates steady, signaling a shift in its monetary policy approach amid signs of an economic slowdown across the eurozone.
Pivoting Policy to Support Growth
The ECB kept its benchmark deposit rate at 4.0%, following a historic streak of 10 consecutive rate hikes. The decision reflects concerns about the eurozone’s weakening economy, with growth projections revised downward to 0.6% for 2024.
ECB President Christine Lagarde highlighted the need for caution, stating, “Our priority remains ensuring inflation returns to target, but we must also consider the risks of over-tightening.” Inflation in the eurozone has eased, with the latest figures showing a decline to 2.7%, nearing the central bank’s 2% target.
The eurozone economy has faced challenges from sluggish industrial production, reduced consumer spending, and geopolitical uncertainties. Germany, the bloc’s largest economy, remains a focal point of concern due to its ongoing contraction in output.
Markets responded positively to the ECB’s announcement, with the euro gaining slightly against the dollar and European stocks closing higher. Analysts believe the pause could mark the end of the ECB’s rate-hike cycle, especially if inflation continues to decline.
The ECB will continue monitoring data closely, balancing its commitment to price stability with the need to support growth. The decision highlights the delicate act central banks face as they navigate global economic uncertainties.
