ECB Maintains Rates, Lowers Growth Forecasts for 2023-24



Key Takeaways

  • ECB keeps key rate at 4%, holds off on rate changes amid falling inflation.
  • Growth forecasts revised down for 2023 and 2024, with a cautious outlook on inflation and labor costs.

Steady Rates Amid Economic Shifts

On Thursday, the European Central Bank (ECB) announced its decision to maintain interest rates, reflecting a strategic pause amid evolving economic conditions. This marks the second consecutive meeting where the ECB has kept its rates unchanged, aligning with expectations due to the recent decline in eurozone inflation. This decision indicates a cautious approach, focusing on when to implement the first rate cut and manage the ECB’s balance sheet effectively.

Revised Growth Forecasts and Inflation Outlook

The ECB has adjusted its growth forecasts in light of changing economic dynamics. The 2023 GDP growth projection has been reduced to 0.6%, a slight decline from the earlier forecast of 0.7%. For 2024, the GDP growth expectation is now 0.8%, down from the previous 1% estimate. However, the projection for 2025 remains steady at 1.5%. Concurrently, inflation forecasts have been moderated, with the ECB projecting a gradual decline over the next year.

Labor Costs and Inflationary Pressures

A critical area of focus for the ECB is the persistent domestic price pressures, primarily stemming from labor cost growth. The ECB anticipates core inflation, excluding energy and food, to average around 5% in 2023 and gradually reduce to 2.1% by 2026. This outlook underscores the ECB’s commitment to ensuring inflation rates return to its target, despite current economic headwinds.


The ECB’s latest stance reflects a balancing act between supporting growth and controlling inflation. Acknowledging the impact of tighter financing conditions on demand, the ECB aims for subdued short-term growth followed by a gradual recovery. This approach is crucial in navigating the current economic landscape, marked by uncertainties and shifting market dynamics.

PEPP Transition and Monetary Policy Normalization

In a significant move, the ECB announced the completion of reinvestments under its pandemic emergency purchase programme (PEPP) by the end of 2024. This gradual transition is part of the ECB’s broader strategy to normalize its balance sheet, indicating a shift in its monetary policy tools towards tightening.


Post-announcement, European markets responded positively, with notable gains in major indices and bond rallies. The euro strengthened against the dollar and held steady against the British pound, reflecting market confidence in the ECB’s decision. Analysts view this move as a balanced response to current economic trends, particularly following the U.S. Federal Reserve’s recent decision to hold rates steady.


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