The European Central Bank keeps interest rates at 4%

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The European Central Bank kept interest rates at all-time highs on Thursday but indicated it was considering cutting them at its next meeting in June.

European Central Bank He said After its board met in Frankfurt, the benchmark interest rate on deposits would remain at 4 percent until rate-setters were confident that price pressures had stabilized.

In a shift from previous language, the ECB said it “would be appropriate” to cut interest rates if core price pressures, its updated forecasts and the impact of previous interest rate hikes increase its confidence that inflation is approaching its 2 percent target “in a sustainable way.”

Eurozone inflation fell from a 2022 peak of 10.6 percent to 2.4 percent in March – very close to the bank's target.

“Even if the policy announcement does not explicitly mention June as the right moment for the first rate cut, we believe that today’s meeting should represent the final stop before the cut,” said Carsten Brzeski, head of global macro research at Dutch bank ING.

The euro, German two-year interest rate-sensitive bond yields, and the Stoxx Europe 600 were all roughly flat the day after the central bank's statement.

However, traders in the swap markets slightly reduced the likelihood that the ECB will start cutting interest rates in June to 70%, from 75% earlier in the day.

Expectations of interest rate cuts have been shaken in markets by data released this week that showed US inflation rose more than expected in March.

Investors have responded by cutting their bets on interest rate cuts by the Fed, which they now attribute to only a 50% probability before September.

Market movements in the US also led traders to reduce their expectations about the number of cuts that the European Central Bank and the Bank of England will make throughout the year.

Some eurozone policymakers, as in the United Kingdom, may want to avoid cutting interest rates more aggressively than their counterparts in the United States, partly out of fear of weakening their currencies and thus increasing inflation.

But Peter Shavrik, a strategist at RBC Capital Markets, said: “The ECB has pinned its colors to the mast, and it seems difficult to imagine changing guidance at this stage when the actual inflation numbers are not far from their own expectations.”