European Central Bank Holds Deposit Rate at 4.00% and Signals Data-Dependent Path Ahead

The European Central Bank left its deposit facility rate unchanged at 4.00% at its March 2024 monetary policy meeting, as the Governing Council indicated it needed more evidence that inflation was on a sustained path back to the 2% target before moving to adjust policy. The decision maintained the restrictive stance the ECB has held since raising rates from negative territory over the course of 2022 and 2023.

The meeting was accompanied by the release of new ECB staff macroeconomic projections, which showed inflation in the euro area returning to the 2% target by 2025. The updated forecasts revised inflation down, particularly for 2024, to 2.3% in 2024, 2.0% in 2025 and 1.9% in 2026, and were published alongside the monetary policy statement. The Governing Council said its decisions would continue to be based on its assessment of the inflation outlook in light of incoming economic and financial data, while stopping short of committing to a specific timetable for rate reductions.

STAFF PROJECTIONS POINT TO 2025 TARGET RETURN

The March projections from ECB staff showed that headline inflation was on a downward trajectory consistent with a return to target within the central bank's medium-term horizon. Policymakers noted that the disinflation process had been proceeding broadly as expected, though they pointed to lingering uncertainty around services inflation and wage dynamics as areas requiring continued attention before easing could be justified. The Governing Council emphasised that it was not yet sufficiently confident that inflation would reach 2% in a timely and sustained manner to warrant a reduction in the policy rate at this juncture.

President Christine Lagarde and her colleagues signalled at the post-decision press conference that the Council remained data-dependent in its approach. Officials noted they would be watching closely for the next rounds of wage data and services price readings before drawing firmer conclusions about the timing or extent of any easing. The Governing Council's statement made clear that interest rates would be maintained at sufficiently restrictive levels for as long as necessary to ensure that inflation returned to target sustainably.