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“Monetary policy is appropriately restrictive and must remain so in 2024,” the head of the IMF’s European department, Alfred Kammer, said on Wednesday. He warned the ECB not to cut interest rates too early. It paused interest rates for the first time in October after ten hikes in a row. The relevant deposit rate on the financial market, which financial institutions receive from the central bank for parking excess funds, remains at 4.00 percent – the highest level since the start of the monetary union in 1999. The key interest rate remains at 4.50 percent.
IMF: Inflation rate for 2025 at target of 2 percent
The IMF assumes that the inflation rate will reach the target of two percent again in 2025. However, the tight labor market could push this date to 2026, warned Kammer. Unemployment is already at a record low. Many industries are desperately looking for employees who have good cards in wage negotiations. Companies, in turn, could pass on higher personnel costs to their customers, which could keep inflation high. The ECB wants to keep this in check with its interest rate policy.
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“Soft landing”
Despite the weak economy, the IMF expects a “soft landing” for the euro area economy and not a deeper recession, said Kammer. The euro zone economy shrank surprisingly in the summer. Gross domestic product fell by 0.1 percent from July to September. Experts, on the other hand, had expected stagnation after an increase of 0.2 percent in the spring.
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