The European Central Bank (ECB) announces this Thursday, 5th, the decision regarding interest rates, which analysts anticipate should remain unchanged, with the focus on the prospects for the future, at a time of appreciation of the euro.
The meeting, which is the first of the year, will take place against the backdrop of the appreciation of the euro, reigniting fears of excessive inflation and negative repercussions for more export-oriented economies, such as Germany.
Even so, for the director of Global Public Markets Investment at Allianz GI, Michael Krautzberger, the ECB should maintain interest rates at its next meeting.
“Considering current growth and inflation data and the reduction in tensions between the US and Europe regarding tariffs, there is no urgency for the ECB to abandon its ‘good position'”, highlighted the analyst, in an analysis note.
Generali AM senior economist Martin Wolburg also believes that ECB President Christine Lagarde will maintain a cautious stance, dependent on economic data, while suggesting that a persistent appreciation of the euro could justify interest rates below the 2% level, currently considered a “good level”.
The rise of the single currency accelerated last week, with the euro reaching four-and-a-half year highs above $1.20, after US President Donald Trump described the dollar’s devaluation as “fantastic”.
Although the ECB does not target any specific exchange rate level, it regularly reiterates that exchange rate fluctuations are monitored because they directly influence the path of inflation.
Analysts believe that the ECB should maintain its interest rates for the fifth consecutive time, as authorities believe that inflation is stabilizing around 2%, the institution’s target.
“The big theme of Thursday’s meeting in Frankfurt will be the strength of the euro against the dollar and what the authorities will have to say about it”, summarizes Felix Schmidt, from Berenberg, in an interview with AFP.
The dollar is depreciating, in particular, due to concerns about Donald Trump’s perceived unpredictability in relation to the world’s largest economy, he highlighted.
The Allianz GI analysis also highlights that the ECB meeting “is expected to be dominated less by the interest rate decision itself than by the Bank’s assessment of medium-term inflation risks and the long-term outlook for monetary policy”.
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