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27/ The March 2024 Governing Council’s monetary policy decisions
14 mars 2024
Post de Gaston Reinesch, Gouverneur de la BCL
Facing the prospect of too high inflation for too long, the Governing Council had raised the three key ECB interest rates in ten steps by altogether 450 basis points between July 2022 and September 2023.
After peaking at 10.6% in October 2022, year-on-year HICP inflation had declined to 4.3% in September 2023. With past interest rate increases working and incoming information broadly confirming its previous assessment of the medium-term inflation outlook, from October 2023 till February 2024, the Governing Council held the key ECB interest rates steady.
By the March 2024 Governing Council meeting, year-on-year inflation declined further to 2.6% (headline inflation) and 3.1% (core inflation) according to the latest Eurostat’s flash estimate for February 2024. Moreover, the March 2024 ECB staff projections suggest a further easing of price pressures between 2024 and 2026.
Compared with the December 2023 projections, the outlook for headline HICP inflation has been revised down for 2024 and 2025, while projected core inflation has been revised down over the entire projection horizon. ECB staff now project headline inflation and core inflation to average 2.3% and 2.6%, respectively, in 2024.[1] For 2025 and 2026, inflation is projected to be, on average, close to the Governing Council’s 2% medium-term target.[2]
The incoming data and the latest ECB staff macroeconomic projections made the Governing Council more, but not yet sufficiently confident about a timely return of inflation towards its medium-term target.[3]
On 7 March 2024, the Governing Council therefore again decided to keep the three key ECB interest rates unchanged at 4.00% (deposit facility), 4.50% (main refinancing operations) and 4.75% (marginal lending facility). The Governing Council also restated it will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction.
Provided the incoming data will confirm, in the light of the June 2024 Eurosystem staff macroeconomic projections, the current prospect of inflation returning timely to its 2% medium-term target, it is not at all groundless to anticipate a first rate reduction towards the end of the second quarter of 2024.
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[1] ECB staff also revised down growth projected for 2024 from 0.8% to 0.6%. Thereafter, ECB staff expect the euro area economy to pick up and to grow at 1.5% in 2025 (unchanged from the December 2023 Eurosystem staff macroeconomic projections) and 1.6% in 2026 (up from 1.5% in December 2023).
[2] ECB staff projects headline inflation, on average, at 2.0% in 2025 and 1.9% in 2026. Core inflation is projected, on average, at 2.1% and 2.0%, respectively.
[3] The outlook for domestic price pressures, as reflected in labour cost and profit growth, remains uncertain at this stage. Moreover, the downward revision to HICP inflation in 2024 according to the March 2024 ECB staff projections is mainly due to the more volatile energy component.
