IMF urges ECB to stabilize interest rates to target 2%

In the context of economic recovery and stabilizing inflation rates, the International Monetary Fund (IMF) has provided guidance regarding the European Central Bank's (ECB) monetary policy. Alfred Kammer, the director of the IMF's European department, addressed this matter during an interview held on the sidelines of the IMF-World Bank Spring Meetings. He noted that the ECB should consider implementing one last quarter percentage point cut to interest rates in the summer of this year before holding firm at the 2% rate. This decision comes following a series of rate reductions that began in June 2024. As rates stand, the current deposit facility rate is 2.25%, showcasing the ECB's proactive approach to disinflation in a climate of increased economic uncertainty. Kammer expressed confidence in the ECB's previous actions, identifying them as a significant success in the ongoing effort to reduce inflation. As of March, inflation in the euro area has shown signs of cooling down to 2.2%, suggesting that previous monetary policy measures have had a positive effect. However, he also emphasized that caution is necessary due to persistent risks associated with external factors, including the state of U.S. tariffs. Kammer reiterated that the ECB's understanding and execution of its monetary policy must remain closely tied to the economic data, ensuring that all decisions are made based on current and accurate information. Moreover, Kammer highlighted a noteworthy shift in the IMF's growth outlooks for developed economies, stating that a "meaningful downgrade" has occurred recently. This adjustment serves as a reminder of the delicate balance that must be maintained within financial systems. As economic growth remains uncertain, the IMF's recommendations to the ECB signify a broader strategy needed to navigate these challenges while aspiring to return to the targeted inflation rate by the second half of 2025. By taking a measured approach to interest rates, the ECB can further stabilize the economy and avoid unnecessary disruptions. In conclusion, the IMF's recommendations reflect a comprehensive understanding of the economic landscape and suggest that the ECB's future interest rate policies should be consistently reevaluated based on emerging economic data and unforeseen challenges.