The European Central Bank (ECB) has decided to keep its key interest rate unchanged at the current level, with commercial banks set to have a deposit rate of 4.00 percent and the rate of basic financing operations at 4.50 percent. Despite this, the ECB hinted that it may start cutting interest rates in June as financial conditions remain tight and previous hikes have dampened demand, slowing inflation.
The decision not to lower interest rates could pose a risk to the fragile economy of the euro area, as high-interest rates increase financing costs for households and businesses, reducing consumption and investments. Inflation in the euro area has slowed significantly over the past year and a half due to tightening monetary policy and easing energy crisis and supply disruptions. It typically takes about a year for the full effects of monetary policy changes to be felt in slowing inflation.
The current economic situation in the Eurozone is challenging, with inflation continuing to slow down and businesses facing a risk of recession. The key interest rate has never been as high as it currently is, indicating a difficult environment for businesses and consumers alike. With inflation slowing down and economic growth at risk, there is a possibility that the ECB will consider lowering interest rates to stimulate economic growth and support sustainable development in the euro area.
In summary, while keeping key interest rates unchanged may help maintain price stability in the short term, it may not be enough to support long-term economic growth in the euro area. The ECB must carefully weigh its options before making any decisions on monetary policy adjustments that could have significant impacts on businesses and consumers alike.
