Eamets: European Central Bank Should Also Worry About Economic Growth Recovery

The European Central Bank (ECB) Governing Council decided today that the interest rates on standing deposits for commercial banks will remain unchanged this time. The decision was expected, as were the previous decisions on interest rate cuts.

Euribor remains above 2%, which means that the market also expected that the deposit rate for commercial banks would stay at 2% and would not be changed. Inflation is under control in Europe. In July, the eurozone's annual inflation rate is expected to be 2%, which is also the ECB's target. Unlike the US central bank – the Federal Reserve – the ECB has not set target objectives for economic growth and unemployment. Actually, it should, because if we look at this year's economic growth forecasts, the picture is not very encouraging. GDP growth forecast is around 1%. Germany, the engine of the European economy, is expecting 0% economic growth. Interest rate cuts would be desperately needed to stimulate economic growth.

Analysts and forecasting firms see at least one more interest rate cut this year. If this expectation is realized, then Euribor would reach a level of 1.8% by the year-end. All these forecasts and assumptions are based on the assumption that nothing drastic happens with tariffs. If the USA imposes high tariffs on EU goods and as a result inflation in Europe accelerates again, then there could be more interest rate cuts. Uncertainty continues.