The European Central Bank on Thursday reaffirmed its cautious stance on cutting interest rates, opting to keep them on hold as inflation remains above the bank's target range.
The ECB decided to keep its key deposit rate unchanged at 3.75%, judging that this level would help stave off loan demand from households and businesses and ease the euro zone's slowing economy and inflationary pressures. The decision follows a quarter-point cut last month, the first in nearly five years.
Euro zone inflation has fallen significantly from a peak expected in the second half of 2022 to an average of 2.5% in June across the 20-nation euro zone, but policymakers are aiming for a sustainable return to their 2% target. European Central Bank President Christine Lagarde said at a press conference in Frankfurt that she sees inflation likely to remain around current levels for the rest of the year.
Despite encouraging economic data that is in line with the bank's inflation forecast, Lagarde stressed that policymakers are not committing to a particular interest rate trajectory. Market expectations had been for the ECB to keep rates on hold at the meeting, but speculation continues about the possibility of one or two further rate cuts before the end of the year.
The next policy meeting is scheduled for mid-September, when the central bank is due to publish its latest inflation and growth forecasts. Traders currently rate the probability of a rate cut at the next meeting at 80%.