Inflated debate: Why won’t the ECB cut rates?

Moreover, Europe’s economy is stagnating and “could use a bit of a momentum injection from lower interest rates”, Sander Tordoir, a senior economist at the Centre for European Reform (CER), told Euractiv.

“The rate decision matters because the eurozone economy has come to a long standstill after getting its recovery [from the pandemic] knocked off course by Russia’s war on Ukraine,” he added.

Tordoir, meanwhile, suggests that the argument about rate cuts is largely being conducted in good faith, amid genuine concerns about price pressures resurfacing in the future.

 “There is a strong debate and arguments on the other [non-rate-cutting] side that inflation may prove more sticky,” he said. “There is this fear of self-perpetuation through expectations, and thus it’s better to stamp out the fire completely before loosening monetary policy.”

Tordoir’s remarks were echoed by ING economist Carsten Brzeski, who is also in favour of a rate cut on Thursday but grants that the bank’s concerns about inflation resurfacing are legitimate. 

“The ECB cannot take a chance on inflation developments,” he told Euractiv. “They want and need to be sure that inflation is back on track.”