The European Central Bank (ECB) has signaled to markets that it is now likely to pause after raising interest rates for a 10th consecutive time.
The central bank for the 20 countries that use the Euro currency raised its benchmark interest rate to 4% from 3.75%, taking it to an all-time-high. The ECB began raising rates in July 2022.
Following comments from the ECB, markets are now pricing in that the central bank will hold off on any further interest rate increase and is likely to start cutting rates in the second half of 2024.
Inflation across Europe remains high at more than 5%, and many economists do not see it falling back to the ECB’s 2% annualized target due to a combination of a tight labour market, rising wages, and high energy costs.
Some economists are now raising concerns publicly that the elevated interest rates will push Europe’s economy into a recession by early next year.
There are also growing fears in Europe of stagflation, a period of economic stagnation that coincides with high inflation, which has not been seen since the late 1970s.
The ECB has revised its forecast, saying it now sees inflation at 3.2% in 2024, which is higher than a previous 3% forecast issued three months ago.
“Inflation continues to decline but is still expected to remain too high for too long,” the ECB said in a written statement accompanying its latest interest rate decision.