Bundesbank President Joachim Nagel indicated that the ECB will likely overlook a temporary dip in inflation below its 2% target, citing forecasts that suggest a medium-term recovery. Despite Eurozone inflation falling to 1.7% in January, the central bank remains steady on its 2% key rate. This stance is bolstered by resilient core inflation and wage growth, which are expected to offset the impact of volatile energy prices and a strengthening euro.
Other comments:
- Update of Dec 2025 projections confirms inflation outlook
- We will take action when medium-term inflation deviates substantially, and noticeably from 2%
- Inflation shortfall is short-term and small
- Risks to inflation are currently roughly balanced
- Current interest rates are still appropriate
The market sees only a 20% chance of any rate cuts this year.
