European Central Bank policymakers held interest rates steady on Thursday, as they reiterated their cautious approach to cutting rates as inflation bumps around above the bank’s target.
The bank kept the key deposit rate at 3.75 percent, which it expects to be restrictive enough to tamp down demand for household and business loans, slow the eurozone economy and restrain inflationary pressures. Last month, policymakers cut the interest rate a quarter point, the first reduction in nearly five years and a tentative step toward easing.
Inflation in the eurozone has fallen a long way from its double-digit highs in late 2022, and policymakers are trying to ensure it returns to their 2 percent target sustainably. Average inflation across the 20 countries that use the euro was 2.5 percent in June, slightly lower than it was in May but higher than in April.
“Inflation is expected to fluctuate around current levels for the rest of the year,” Christine Lagarde, the president of the European Central Bank, said at a news conference in Frankfurt.
Though recent economic data supports the bank’s view of the region’s inflation outlook, policymakers “are not pre-committing to a particular rate path,” she added.
Investors widely expected the bank to hold rates at this meeting, but are still betting that there will be one or two more rate cuts this year. The E.C.B. next meets to set policy in mid-September, when it will also present new inflation and growth forecasts by the bank’s staff. Traders are betting that there is about an 80 percent chance of a cut at that meeting.
The E.C.B., like other major central banks, has been searching for a balance of interest rates that are high enough to maintain low inflation but not so high they cause excessive damage to the economy. Some other European central banks, including in Sweden and Switzerland, have cut rates. The U.S. Federal Reserve and Bank of England have not, but their officials have indicated that rate cuts are the most likely next step.
European policymakers said that most measures of underlying inflation were stable, but domestic price pressures were high and inflation in the services sector, which includes hospitality, was “elevated.” Headline inflation, which includes often volatile elements like food and energy, would also stay above target “well into next year,” policymakers said.
Services inflation, which is heavily influenced by wage costs, was 4.1 percent in June, the same as the previous month, and the highest it has been since October. Unlike other components of inflation, such as food or energy prices, prices in the services sector have remained buoyant as households spend more on travel and leisure and their wages, on average, have gone up.
Europe is also having a busy tourism season. On top of traditional summer vacations, visitors have traveled for big concerts and the Euro 2024 soccer tournament in Germany. And later this month, the Olympics begins in Paris.
“The question of September and what we do in September is wide open,” Ms. Lagarde said.