As before, the ECB’s further steps will depend on the current situation, Banka Slovenije governor Boštjan Vasle wrote after the renewed increase in interest rates by 0.25 percentage points. With increases, the ECB is trying to ensure that inflation returns to the two percent target.
The latest economic forecasts for the euro area predict slightly slower economic growth and slightly higher inflation, Vasle wrote in a statement. Based on the current assessment, with Thursday’s rise in interest rates, they have reached levels which, according to Vaslet, if maintained long enough, will significantly contribute to the return of inflation to the target level.
“Our future decisions will also continue to ensure that interest rate levels are sufficiently restrictive for as long as necessary to return inflation to our 2% target on time,” he stated.
On Thursday, the members of the Council of the European Central Bank of the ECB discussed the latest economic forecasts, which for the period 2023-2025 foresee a slightly worsened outlook for economic growth in the face of falling inflation. GDP growth will thus be 0.7% this year due to weak current dynamics, which will continue for the rest of the year.
Economic growth will then strengthen to 1.0 percent and 1.5 percent in 2024 and 2025, due to the positive effects of lower inflation, the improvement of the world trade situation and the gradual strengthening of real household incomes.
According to his explanations, inflation will gradually decrease and will be 5.6% on average this year, and in 2024 and 2025 it will also increase due to rising disinflationary the effects of a tighter monetary policy further decreased to 3.2 percent and 2.1 percent.
The situation on the financial markets was otherwise stable in August. “This shows in the low volatility and stable loan premiums in riskier financial segments, despite the somewhat deteriorated economic outlook of the euro area,” added Vasle.
With persistent inflation, market participants expect key interest rates to remain at high levels for a longer period of time. As a result, the yields of public and private sector bonds in the euro area increased, especially over the longer term, he concluded.