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The European Central Bank (ECB) has decided to maintain interest rates at their current record levels, indicating a potential rate cut in the near future.

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The European Central Bank (ECB) opted to maintain interest rates at record highs on Thursday, yet it provided a clearer indication that it might be gearing up to lower them, given the ongoing decline in euro zone inflation. Despite the ECB holding its deposit rate steady at 4.0%—unchanged since September as part of a concerted effort to stabilize prices—it hinted at the possibility of a rate cut at its forthcoming meeting.

The ECB’s statement emphasized that if the Governing Council’s updated evaluation of the inflation outlook, underlying inflation trends, and the effectiveness of monetary policy transmission further bolstered confidence in achieving sustained convergence towards the 2% target, a reduction in the current level of monetary policy constraints would be deemed appropriate.

Notably, ECB policymakers, even those typically in favor of higher rates, have shown support for a rate decrease at the June 6 meeting, contingent upon continued moderation in key indicators such as wage growth and underlying inflation. However, this decision could become more complex due to uncertainty surrounding whether the Federal Reserve will be able to implement rate cuts in June, given that U.S. inflation remains persistently above its target.

ECB President Christine Lagarde is expected to address the central bank’s plans for June and the potential for further rate cuts in July during her regular news conference at 1245 GMT.

In addition to maintaining the deposit rate, the ECB also left unchanged the interest rates on its daily and weekly loans for banks at 4.75% and 4.50%, respectively. Banks have scarcely utilized these auctions for years, as they still possess ample liquidity from previous monetary stimulus programs enacted in the last decade.

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