ECB: The new forecasts regarding inflation and economic growth will decide the interest rate cut

The new forecasts to be published in March by the European Central Bank on inflation and economic growth will be essential to decide when interest rates will begin to decrease, said Pablo Hernandez de Cos, member of the ECB Governing Council.

ECB headquarters

The ECB will publish its economic forecasts in March

“The projections will be key to assessing, firstly, whether we can be confident enough that our medium-term inflation target of 2% will be achieved, taking into account the associated risks. Second, we need to assess the process of lowering interest rates, which is compatible with achieving our symmetrical target“, said Pablo Hernandez de Cos, Governor of the ECB, in an interview given to the Cyprus publication Politis on Sunday, reports Bloomberg.

To fight high inflation, the ECB started an unprecedented cycle of monetary policy tightening, so that in the period between July 2022 and September 2023, the euro guardians increased the cost of credit in ten consecutive installments, up to the historic level of 4%.

And the ECB’s chief economist, Philip Lane, pointed out that more assurances are needed that inflation is returning to the 2% target for officials to be able to cut interest rates.

Indicating that he prefers not to hasten the relaxation of monetary policy, Lane explained that, although at this moment the disinflation process could take place faster than anticipated, the medium-term prospects are less clear.

“In terms of the overall assessment of the path of our monetary policy, we need to observe the disinflation process longer before we have sufficient confidence that inflation will reach the target in a timely and sustainable manner,” Lane said.

After the rise in prices that followed the pandemic and the invasion of Ukraine by Russia was not accurately assessed, De Cos explained that now confidence in the ECB’s projections has increased significantly: “The errors in the forecasts have been extremely small and even negative in the last quarters, which means that the inflation data is slightly below the forecasted level”.

Disinflation in the euro area will probably continue in the coming quarters, the ECB official said.

The preliminary data published by Eurostat show that the annual rate of inflation in the euro area stood at 2.8% last month, down from 2.9% in December and in line with estimates.

Core inflation, which is what remains after the prices of volatile goods such as energy and food are removed, eased to 3.3% in January from 3.4% in December, while analysts last month they were expecting a drop of up to 3.2%. Core inflation is the indicator closely followed by the ECB when elaborating its monetary policy decisions.

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