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ECB Hits Pause on Aggressive Measures Amid High Core Rate Concerns

Published 05/10/2023, 19:06
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The European Central Bank (ECB), under the leadership of Bundesbank President Joachim Nagel, has indicated a more cautious approach toward inflation control in the coming months, following a significant increase in its deposit rate over the past year. This decision comes amid market predictions for slim chances of additional rate hikes due to economic growth stall.

On Thursday, Nagel addressed the ongoing fight against inflation in the Euro zone. Despite a decline in rates, he emphasized that the battle against inflation is far from over due to persistent high underlying price growth. In response to this challenge, the ECB had previously raised its deposit rate from negative territory to a record 4% within a year.

Market forecasts suggest that inflation is expected to stabilize around 3% by the end of the year before moving towards the bank's 2% target. This projection seems to align with ECB's shift towards a less aggressive stance.

In addition to these measures, Nagel rejected proposals from ECB board member and incoming Bank of Italy Governor Fabio Panetta for a centralized fiscal capacity. He also expressed reservations about replicating the €750 billion Next Generation EU Fund. His comments reflect concerns about financial integration and potential burdens on the German taxpayer.

The ECB's new direction indicates an effort to balance inflation control with economic growth, while carefully considering the implications for Euro zone taxpayers.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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