ECB leaves rates unchanged; cuts inflation, growth forecasts

The European Central Bank kept interest rates unchanged on Thursday as it cut inflation and growth forecasts.

The benchmark deposit rate was left at an all-time high of 4% while the refinancing rate was kept at 4.50%, both as expected.

The Bank now expects eurozone economic growth of 0.6% this year, down from a previous forecast of 0.8%. Meanwhile, the forecast for inflation was cut to 2.3% from 2.7%.

The ECB said: "Although most measures of underlying inflation have eased further, domestic price pressures remain high, in part owing to strong growth in wages."

ING global head of macro Carsten Brzeski said the overall tone of the policy statement didn’t shift towards more dovishness.

"In fact, the ECB maintained the stance that rates at current levels ‘maintained for a sufficiently long duration will make a substantial contribution to this [bringing inflation back to 2%] goal’," he said. "The ECB’s general economic assessment has not changed, but the latest round of staff projections brought the expected downward revision to growth and inflation forecasts."

He continued: "While the worsening of the eurozone’s economic outlook and further fading away of (headline) inflationary pressures would argue for rather imminent smaller rate cuts to bring some relief, stubborn underlying inflation, particularly services inflation, uncertainty regarding wage developments and the never-ending confidence in an economic rebound in the eurozone still prevent the ECB from cutting rates - at least for now.

"As long as the ECB is not willing to accept that inflation is only roughly returning to target but instead pushing for an exact landing point of 2%, rate cuts should be on the agenda only at the June meeting. This is when enough data points will be available, either confirming that the inflation beast has really been tamed or pointing to renewed upward pressure on prices.

"Only a much more alarmed ECB on the growth outlook could trigger a rate cut already in late April."