ECB: The upcoming action will be an increase

ECB Meeting Insights: Interest Rate Outlook

The European Central Bank convened on February 5. In my assessment, the most probable direction for interest rates is upward rather than downward. While some market participants continue to anticipate a potential rate reduction within the year, I hold a different perspective. Allow me to clarify my reasoning.

Earlier this year, I analyzed the ECB's policy response and determined that the neutral rate (r*) for the eurozone stands at approximately –0.3% when core inflation is factored into the real interest rate calculation. This estimate appears reasonable. When rates are at r*, inflation should remain steady.

During the latter half of last year, headline HICP inflation hovered between 2.1% and 2.4%, while core inflation ranged from 2.3% to 2.4%. These figures indicate that inflation has reached a period of stability. This context shapes my outlook on the ECB's next steps.