Maintenance of rates decided by broad consensus of ECB members – Markets

Maintaining Eurozone interest rates at 4.5% was decided “by broad consensus” by the ECB, although “some members felt confident enough” to lower them, due to the risk of a greater than desired effect.

At the monetary policy meeting on April 10 and 11, the board of the European Central Bank (ECB) decided to maintain, for the fifth consecutive time, interest rates at 4.5%, the credit facility – which lends to banks during the night – at 4.75% and the deposit facility – which remunerates excess reservations overnight – at 4%.

A decision that, according to the minutes of the meeting published today by the organization, was taken “by broad consensus”, after “a large majority of members” agreed with the proposal made by the ECB’s chief economist, Philip R. Lane. However, some members were “sufficiently convinced” that inflation, underlying inflation and monetary policy transmission “justified a reduction in policy rates” at the meeting.

The minutes thus reflect the beginning of the debate on a possible reduction within the Council, after the banking authorities unanimously decided to maintain the restrictive orientation in meetings prior to the one held in April.

On this occasion, advocates of a reduction recalled that, since the last official rate hike, in September 2023, real interest rates had been close to their peak, considering it likely that the effects of the tightening policy would persist even if the price of money was reduced.

They also highlighted that the reduction in the Eurosystem’s balance sheet was compressing the economy and that there was a risk of inflation falling further if economic weakness persisted.

In this context, they considered that, currently, the risk of lowering rates too late was “at least as high” as the risk of lowering rates too early, as it could have “too high a price in terms of decreasing activity”.

In any case, “a broad consensus was reached” in which members agreed to maintain rates at current levels, pending “new signs of a timely and sustained return of inflation to the 2% objective”.

“Members highlighted the convenience of waiting until June for new evidence that confirms or indicates a change in perspectives”, the minutes state, highlighting that new risks arising from a possible escalation of geopolitical tensions will also be assessed.

Monetary policymakers agreed that the economy had remained weak in the first quarter and that the latest data gave “mixed” signals, as while some soft indicators had become more favorable, other hard indicators persistently pointed to stronger growth. slow.

In particular, it was noted that although spending on services was resilient, companies in the manufacturing industry faced weak demand and subdued production, especially in energy-intensive sectors.

With regard to inflation, they considered that it would fluctuate around current levels in the short term, although this irregularity in its decline would be “consistent with a return” to the objective in mid-2025.