With medium-term inflation projections for the euro area anchored at 2.0%, the ECB’s Governing Council is of the opinion that the euro area has overcome the inflationary shock caused by Russia’s military aggression launched against Ukraine in February 2022. On Thursday 24 July, it therefore decided to leave its three key interest rates unchanged for the first time after eight meetings which resulted in rate cuts (see EUROPE 13654/19).
“The Governing Council today decided to keep the three key ECB interest rates unchanged”, said its President, Christine Lagarde, describing the decision as “unanimous”. She pointed out that the Frankfurt institute never commits to a specific rate path in advance, as this is decided on a meeting-by-meeting approach on the basis of updated data.
The interest rates on the deposit facility, the main refinancing operations and the marginal lending facility are therefore maintained at 2.00, 2.15 and 2.40% respectively.
According to Ms Lagarde, the ECB is “in a good place” to fulfil its price stability mission, given that “Inflation is currently at the 2% medium-term target”. She made several references to the importance of “wages growing more slowly”, a development which she believes is moving “in the right direction”. And she added: “We’re now confident that the inflationary shock is behind us. We’re now looking at what’s coming and its impact on our economy”.
Despite the high level of uncertainty linked to trade and geopolitical tensions, the ECB President spoke of the favourable trend in the euro area economy, with GDP growth of 0.6% in the first quarter, which came as a pleasant surprise. This performance is due in part to the anticipation of exports ahead of the potential introduction of tariffs by the United States, but also to increased consumption and investment. Other factors favouring growth include unemployment at 6.3% of the working population in May, close to its lowest level ever, and favourable financing conditions for demand, particularly in the property sector.
Nevertheless, downside risks continue to dominate, according to the monetary institute, mainly because of the tariff disputes provoked by US President Donald Trump (see other news). The sooner these tensions are resolved, the better for the economy, said Ms Lagarde.
The ECB is urging Member States to strengthen the euro area, through fiscal and economic policies that boost competitiveness and resilience, and by developing a regulatory framework that enables the creation of the digital euro.
Digital euro. With regard to the plan to create a digital central bank currency, Ms Lagarde said that the digital euro would be the “digital expression of cash” (see EUROPE 13680/25). “As technology evolves and payment preferences change, we need to respond to demand”, she said.
Asked about the ‘Genius Act’, the bill to regulate ‘stablecoins’ in the United States, the ECB President welcomed the creation of rules that will help to “understand the risks, benefits and opportunities” associated with this fast-growing market. However, it is “too early to assess all the consequences” of the US rules, she said, urging stakeholders to remain “focused on what we need to do here in Europe”.
The next meeting of the Governing Council will take place on Thursday 11 September in Frankfurt.
To see the ECB’s monetary policy decisions: https://aeur.eu/f/i02 (Original version in French by Mathieu Bion)