ECB holds interest rates steady but moves closer to implementing cuts

Policymakers may have been spooked by rising US inflation ahead of its monetary policy meeting today. 

President of European Central Bank, Christine Lagarde Pic: AP Photo/Michael Probst

The European Central Bank (ECB) kept its main lending rate unchanged at 4.5% at its meeting in Frankfurt today, but moved closer to an expected interest rate cut this summer.

The European financial regulator remained vague on when rate cuts will be implemented this year but said "the past interest rate increases continue to weigh on demand, which is helping to push down inflation."

"But domestic price pressures are strong and are keeping services price inflation high," it continued.

Ahead of the ECB meeting, US annual consumer price inflation rose to 3.5% in March, leading analysts to speculate that the Federal Reserve may delay interest rate cuts and influence the ECB to do the same.

Earlier today, oil prices slipped as the US inflation figures cooled rate cut expectations, but remained near six-month highs as tensions heighten between Israel and Iran.

Brent crude futures were down 49 cents or 0.5% to $89.99 a barrel.

Meanwhile, the ECB continues to monitor wage inflation in the eurozone which it has voiced concern about in recent months. The regulator said rising wages could fuel higher prices this year.

"Most measures of underlying inflation are easing, wage growth is gradually moderating, and firms are absorbing part of the rise in labour costs in their profits," said the ECB ahead of its press conference later today.

Closer to home, consumer price inflation reached 2.9% last month, a 0.5% compared to February.

However, inflation has cooled annually from 3.4% since March 2023.

Interest rate reductions will provide immediate relief to tracker mortgage customers who have been hit the most by changing monetary policy. 

However, mortgage customers coming off fixed rate contracts are expected to see increases in their monthly repayments and experts are doubtful that the banks will be quick to pass on cuts to these customers.