ECB Holds Rates

Marcelo Rebelo de Sousa , President of the Portuguese Republic, believes that the European Central Bank's (ECB) decision to maintain interest rates is not good news, although it was expected. He considers that the real reason for this expectation is linked to the elections.

ECB Holds Rates: "Not Good News", Reveals Marcelo the "Real Reason"

"This is expected news, but not good news. Although the reason given is linked to inflation in certain countries in Europe, I think the real reason is something else: it's concern about the American and European elections, with their consequences for the war and, consequently, the weight this may have on the economic situation throughout 2024. Hence the wait for another three months", said Marcelo, in an interview broadcast by RTP3.

Analysts consulted by Lusa believe that the European Central Bank and the US Federal Reserve will coordinate an interest rate cut in June, emphasizing the pace of the reduction.

After years of historically low interest rates, the US Federal Reserve has taken the lead over the European Central Bank in the fight against inflation. In March 2022, it began the end of the era of cheap money by raising rates for the first time since 2018, by 25 basis points. The ECB only raised rates in July 2022, for the first time in 11 years, by 50 basis points.

Analysts predict ECB and Fed rate cuts in June

Analysts consulted by Lusa believe that the European Central Bank and the US Federal Reserve will act in concert to cut interest rates in June, emphasizing the pace of the cut.

The difference in timing has led to criticism of the European Central Bank's "slowness" to act, but the two central banks could now be aligned for the first adjustment, according to market expectations.

The European Central Bank and the Fed, which have kept interest rates unchanged at recent meetings, are assessing whether inflation is sufficiently under control to start cutting rates. This would make borrowing cheaper for consumers and businesses, encouraging them to take out loans, spend and invest, thus avoiding an economic slowdown that could lead to higher unemployment.

As expected, the ECB on Thursday kept interest rates unchanged for the fourth time in succession. The institution's president, Christine Lagarde, told a press conference that the central bank was making "good progress" in bringing inflation back to the 2% target, but that it had not yet succeeded.

The ECB has revised down its average inflation forecast for the eurozone to 2% in 2025, bringing next year's inflation in line with the central bank's price stability objective of 2.3% in 2024.

Lagarde's statements created expectations in the market about the timing of a rate cut, saying that economic data would dictate the bank's next step and that in April it would have "a little" more information and "a lot more in June".