Governor’s statement following the ECB Governing Council’s monetary policy meeting, with commentary on the current situation

Yesterday, members of the ECB’s Governing Council discussed the latest forecasts for the euro area, which predict lower inflation and slightly slower economic growth this year compared to previous forecasts. Based on the new macroeconomic projections and the latest data, which point to the persistence of domestic inflationary pressures in the face of easing inflation, the Governing Council members decided to keep the ECB’s key interest rates unchanged. Our assessment is that if maintained sufficiently long, the current level of interest rates will make a significant contribution to the timely return of inflation to its target level. The next steps will continue to depend on the situation as it stands at the time, in particular on the economic and financial data, developments in core inflation, and the effectiveness of our measures.

According to the latest forecasts presented yesterday, GDP growth will be 0.6% this year and is expected to pick up to 1.5% in 2025 and 1.6% in 2026, supported by growth in real household incomes, government consumption and foreign demand. Inflation will continue to decline over the forecast horizon, but the pace of future inflation deceleration will be largely driven by developments in core inflation and labour cost growth once external cost pressures have eased. Inflation will average 2.3% this year and will fall further to 2.0% in 2025 and 1.9% in 2026 as a result of the persisting deflationary effects of the monetary policy.

The continued decline in inflation, which has slowed somewhat in recent months, maintains market participants’ expectations for the ECB to cut key interest rates later this year, though they expect the cuts to be more gradual and cautious than initially anticipated. As a result, the required yields have risen to slightly higher levels over the past month for both government and private sector bonds. Stock indices rose in February. Risk premiums remain relatively low, continuing to reflect market participants’ expectations that central banks will stabilise inflation at 2% without a stronger economic contraction.

Based on the latest data and the new macroeconomic projections for the euro area, the Governing Council has decided to leave the ECB’s key interest rates unchanged. Our assessment is that if maintained sufficiently long, the current level of interest rates will make a significant contribution to the timely return of inflation to its target level. The next steps will continue to depend on the situation as it stands at the time, in particular on the economic and financial data, developments in core inflation, and the effectiveness of our measures. Our decisions will ensure that interest rates are kept at sufficiently restrictive levels for as long as it takes for inflation to return to our 2% target in a timely manner.