Alex Trelinski
THE European Central Bank(ECB) has left interest rates unchanged at 4.5%, as had been widely expected.
Economists believe that with lower inflation, the ECB will make a cut in June from the highest rate figure since 2001.
An ECB statement on Thursday said: “If the current trend continues, it would be appropriate to reduce the present level of monetary policy tightening.”
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Speaking at a news conference, ECB president, Christine Lagarde, said: “If the trajectory of inflation continues to fall, rates will reflect this.”
She added that ‘the majority of Council members’ opted to wait until June, meaning that some were already keen on a cut this month.
A reduction will help people with variable rate mortgages and reduce the general cost of borrowing.
Interest rate hikes were used as a key tool to bring down inflation from double digits two years ago.
They dampened down demand but at the expense of lower economic growth.
“Most indicators of core inflation are declining, wage growth is gradually moderating, and firms are absorbing some of the increase in labour costs into their profits,” the ECB said.
The view is that the next ECB Council meeting scheduled for June 6 will bring a rate cut and it would be surprising if that did not happen.
