Christine Lagarde, President of the European Central Bank (ECB), explains the ECB’s decision to leave the key interest rates unchanged in March and responds to questions from the press.
This section below was published at 13:15 GMT to cover the European Central Bank’s policy announcements and the immediate market reaction.
The European Central Bank (ECB) announced on Thursday that it left key rates unchanged following the March policy meeting. With this decision, the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will stay at 4.50%, 4.75% and 4.00%, respectively.
In the ECB Staff Projections released alongside the policy statement, the ECB noted that inflation has been revised down, in particular for 2024, which mainly reflects a lower contribution from energy prices.
ECB Staff Projections
“Staff now project inflation to average 2.3% in 2024, 2.0% in 2025 and 1.9% in 2026.”
“Projections for inflation excluding energy and food have also been revised down and average 2.6% for 2024, 2.1% for 2025 and 2.0% for 2026.”
“Staff have revised down their growth projection for 2024 to 0.6%, with economic activity expected to remain subdued in near term.”
“Thereafter, staff expect economy to pick up and to grow at 1.5% in 2025 and 1.6% in 2026, supported initially by consumption and later also by investment.”
Key takeaways from ECB policy statement
“Financing conditions are restrictive and past interest rate increases continue to weigh on demand, which is helping push down inflation.”
“Based on the current assessment, ECB considers that interest rates are at levels that, maintained for a sufficiently long duration, will make a substantial contribution to this goal.”
“Future decisions will ensure that policy rates will be set at sufficiently restrictive levels for as long as necessary.”
“In particular, ECB’s interest rate decisions will be based on its assessment of inflation outlook in light of incoming economic and financial data, dynamics of underlying inflation and strength of monetary policy transmission.”
“APP and Pandemic Emergency Purchase Programme (PEPP) APP portfolio is declining at a measured and predictable pace, as Eurosystem no longer reinvests principal payments from maturing securities.”
“ECB intends to continue to reinvest, in full, principal payments from maturing securities purchased under pepp during first half of 2024.”
“Over second half of year, ECB intends to reduce PEPP portfolio by €7.5 billion per month on average.”
“ECB intends to discontinue reinvestments under PEPP at end of 2024.”
“ECB will continue applying flexibility in reinvesting redemptions coming due in PEPPportfolio, with a view to countering risks to monetary policy transmission mechanism related to pandemic.
Market reaction to ECB policy announcements
EUR/USD edged lower with the immediate reaction and the pair was last seen losing 0.17% on the day at 1.0880.
Euro price today
The table below shows the percentage change of Euro (EUR) against listed major currencies today. Euro was the weakest against the Japanese Yen.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.17% | -0.11% | -0.11% | -0.63% | -1.00% | -0.58% | -0.28% | |
| EUR | -0.16% | -0.28% | -0.28% | -0.81% | -1.17% | -0.76% | -0.43% | |
| GBP | 0.10% | 0.28% | -0.01% | -0.53% | -0.90% | -0.48% | -0.16% | |
| CAD | 0.11% | 0.30% | 0.00% | -0.53% | -0.89% | -0.48% | -0.20% | |
| AUD | 0.62% | 0.80% | 0.52% | 0.52% | -0.36% | 0.03% | 0.33% | |
| JPY | 0.99% | 1.15% | 0.87% | 0.86% | 0.36% | 0.40% | 0.71% | |
| NZD | 0.57% | 0.76% | 0.48% | 0.48% | -0.04% | -0.40% | 0.31% | |
| CHF | 0.26% | 0.48% | 0.16% | 0.16% | -0.35% | -0.68% | -0.28% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
This section below was published as a preview of the European Central Bank policy announcements at 08:00 GMT.
- The European Central Bank is set to hold interest rates for the fourth meeting in a row.
- ECB President Christine Lagarde could dismiss early rate cut expectations once again.
- The Euro’s reaction is likely to depend on the ECB’s updated forecasts and Lagarde’s speech.
The European Central Bank (ECB) is widely expected to keep the key interest rates on hold for the fourth policy meeting in a row, in a decision that will be published on Thursday at 13:15 GMT.
The policy announcements will be accompanied by the updated economic projections, followed by ECB President Christine Lagarde’s press conference at 13:45 GMT.
What to expect from the European Central Bank interest rate decision?
Economists are expecting the ECB to keep its three key interest rates steady, with the benchmark Deposit Rate at 4.0%, following the conclusion of the Governing Council’s March monetary policy meeting.
The central bank is likely to downgrade its forecasts for inflation and growth in its staff projections. The economic forecasts unveiled at the December meeting showed that the ECB estimated GDP to expand by 0.8% in 2024 from 1% previously estimated. Headline inflation was expected to average 2.7% in 2024 and 2.1% in 2025. The Bank had previously forecast price growth of 3.2% in 2024 and 2.1% in 2025.
Data published by Eurostat showed on Friday that the Eurozone annual Harmonised Index of Consumer Prices (HICP) rose 2.6% in February, cooling from a 2.8% increase in January but above the expected 2.5% growth in the reported period. The Core HICP inflation declined to 3.1% YoY in February, compared with January’s 3.3% reading while beating expectations of 2.9%.
Further, ECB’s closely watched indicator of the Euro area’s negotiated wages grew at an annual rate of 4.50% in Q4 2023, slowing from a 4.70% increase in the third quarter.
With inflationary pressures easing and many ECB policymakers making it clear they want to see a further deceleration in wage growth, money markets are pricing in an interest rate cut for the June meeting, as against the previous expectations of a September rate cut.
Speaking in a Bloomberg interview on the sidelines of the World Economic Forum (WEF) Annual Meeting in Davos, back in January, ECB President Christine Lagarde said, “it is likely that we will cut rates by the summer.”
However, when asked about the timing of cuts at the post-policy meeting press conference a week later, Lagarde said that the central bank was “data dependent, not time dependent.”
That said, Lagarde is likely to maintain its hawkish bias until the Eurozone indicator of negotiated wage rate for the first quarter is released on May 23.
Testifying before the European Parliament last month, President Lagarde said “our restrictive monetary policy stance, the ensuing strong decline in headline inflation and firmly anchored longer-term inflation expectations act as a safeguard against a sustained wage-price spiral.”
How could the ECB meeting impact EUR/USD?
In a scenario where Lagarde sticks to the Bank’s “data-dependent approach”, pushing back against expectations of an early policy pivot, the Euro is likely to attract a strong bid against the US Dollar, as the markets would perceive it as a hawkish hold.
However, a dovish shift in Lagarde’s tone, acknowledging softening wage pressures, could take the wind out of the recent EUR/USD recovery.
Her comments will hold the key for determining the timing and scope of future interest rate cuts, significantly impacting the value of the main currency pair.
Dhwani Mehta, FXStreet’s Senior Analyst, offers a brief technical outlook for trading the Euro on the ECB policy announcements: “The EUR/USD pair broke through the critical 50-day Simple Moving Average (SMA) at 1.0857 on Wednesday, opening the door for further upside. The 14-day Relative Strength Index (RSI) holds comfortable above the midline, backing the pair’s bullish potential.”
“Acceptance above the 1.0950 level is likely to refuel the upside momentum toward the 1.1000 psychological level. EUR buyers will then aim for the 1.1050 key level. Conversely, the initial demand area is seen around the 50-day SMA at 1.0857, below which a test of the 1.0835 support will be inevitable. That level is the confluence of the 100- and 200-day SMAs. Further south, the 21-day SMA at 1.0811 could come to the rescue of EUR/USD,” Dhwani adds.
ECB FAQs
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.
