The European Central Bank stands pat as scheduled, reiterating that further rate cuts require more data

According to the financial news app Zhitong Finance, after the milestone interest rate cut last month, the European Central Bank (ECB) on Thursday kept interest rates unchanged. Despite investors and economists betting on another rate cut in September, the ECB did not reveal any plans.

The ECB maintained the deposit rate at 3.75%, in line with the expectations of all 55 economists surveyed. The ECB reiterated that borrowing costs will remain "sufficiently restrictive for as long as necessary" to ensure inflation returns to 2%.

In a statement, the ECB said, "The new information released overall supports the Governing Council's previous assessment of the medium-term inflation outlook. Meanwhile, domestic price pressures remain high, service sector inflation is rising, and overall inflation may continue to be above target levels next year."

The ECB once again stated that it will not "pre-commit to a specific interest rate path," while reaffirming its "data-dependent and meeting-by-meeting approach."

After the interest rate decision was announced, the euro maintained its earlier decline. The money markets continue to expect the ECB to cut rates twice more in 2024.

Currently, the ECB is weighing whether inflation in the euro area has cooled sufficiently to allow for further monetary policy easing. Last month, despite lingering pressures, service costs rose by over 4% again, but overall inflation in the euro area slightly decreased from 2.6% to 2.5%.

ECB President Lagarde stated that officials need data to provide more certainty, and Europe's labor market has shown remarkable resilience during the two-year economic stagnation, allowing them to wait for the right moment.

Although policymakers are more cautious this time, in recent weeks, several policymakers have tentatively expressed support for another one or two rate cuts. The market expects them to prepare for the first of the next two rate cuts at the policy meeting two months later.

By then, they will have new economic forecasts, two additional inflation data points, and data supporting the three elements they believe will bring price increases back to target levels by the end of 2025 - wage growth, corporate profit margins, and productivity.

Furthermore, the intentions of the Federal Reserve are expected to become clearer, with the market anticipating the US's first rate cut a week after the end of the ECB's September meeting.

Following a series of rate hikes aimed at easing inflation, the ECB's current cautious approach to monetary policy easing aligns with recommendations from top global institutions.

The International Monetary Fund (IMF) warned on Tuesday that the pace of inflation decline in many major economies is slower than expected, mainly due to the stickiness of service prices - "increasing the possibility of high rates being maintained for a longer period."

The Bank for International Settlements stated in June this year that major central banks should not lower borrowing costs too quickly to avoid prices soaring again However, despite the general decline in inflation rates, there are signs that the economic recovery of the 20 member countries in the Eurozone is losing momentum in the face of persistently high interest rates. Political turmoil in France and globally has added to this pressure.

Therefore, as officials receive the latest economic forecasts each quarter, the next policy meeting of the European Central Bank will provide an opportunity for a better assessment of the background. Some policymakers have indicated a preference to only take action at meetings where they can receive the latest quarterly forecasts, and Lagarde herself has hinted at a similar stance.

Economists believe that this approach will become a reality. In a survey conducted this month, respondents expect the European Central Bank to cut interest rates quarterly until the autumn of 2025, lowering the deposit rate to 2.5%