The ECB's wait-and-see monetary policy is consistent
Lena Dräger, Research Director of the Monetary Macroeconomics Group at the Kiel Institute for the World Economy, comments on the expected decision by the European Central Bank (ECB) to leave its key interest rate unchanged today:
"The European Central Bank (ECB) continues its current monetary policy stance. The wait-and-see monetary policy is consistent regarding the current economic situation in the eurozone and at the same time preserves the flexibility to adjust interest rates up or down. The ECB should maintain this flexibility in view of the continuing high level of economic and political uncertainty and therefore stick to its “meeting-by-meeting” decision-making approach.
The latest data underscores the reason for this wait-and-see approach: Inflation in the eurozone remained at around 2.2 percent in November, only slightly above the ECB's medium-term target. While forecasts for economic development in Germany have recently been revised downward, expectations for the eurozone as a whole have developed more positively.
ECB President Christine Lagarde recently noted that a further interest rate cut would currently only occur in the event of a major negative economic shock. At the same time, ECB Governing Council member Isabel Schnabel mentioned possible upside risks to inflation in the eurozone due to persistently high services inflation, high nominal wage growth, and raised inflation expectations among households. This would argue in favor of an interest rate hike as the next step. However, both emphasize that interest rates in the eurozone are currently in line with the mandate of price stability and that there is therefore a high probability that they will be kept constant for longer."
