There were no surprises from the ECB in terms of the main policy instruments. The key deposit rate remains at its record high of 4.0 percent while the refi rate stays at 4.50 percent and the rate on the marginal lending facility at 4.75. percent. There were similarly no adjustments made to the QT programme, currently limited to the longstanding asset purchase programme (APP) but due to include the pandemic emergency purchase programme (PEPP) from July. The 'soft' forward guidance was also unchanged whereby the"Governing Council considers that the key ECB interest rates are at levels that, maintained for a sufficiently long duration, will make a substantial contribution…" to meeting the inflation goal.

However, the bank has made some potentially significant changes to its economic projections, of most importance a generally softer profile for inflation. In December 2023, headline HICP inflation was seen at 1.9 percent in 2026, the end of the forecast horizon, and so just below the 2 percent medium-term target. However, the core rate that excludes food and energy was seen a couple of ticks higher at 2.1 percent and so justified the decision to leave official interest rates on hold. The revised outlook has left the headline rate at 1.9 percent but trimmed core inflation a tick to 2.0 percent. This will bolster speculation about an interest rate cut in the pipeline.

That said, the bank also pointed out that domestic price pressures remain high, in part due to strong wage growth and a very tight labour market. As such, while opening the door to lower interest rates, the forecast amendments should not be seen as indicating that a cut is just around the corner. It also underlines the importance of the outcome of the current wage round. For the real economy, which is still seen as weak, the bank now sees Eurozone GDP expanding just 0.6 percent this year (down 0.2 percentage points from December) before accelerating to an unrevised 1.5 percent rate in 2025 and a marginally higher revised 1.6 percent in 2026. Risks to growth remain on the downside.

Today's discussions will leave financial markets convinced that a cut in key rates is just a matter of time. However, with wages high and core inflation still not officially expected to fall below target until 2026, a move as soon as April remains unlikely. The meeting in June still looks like being the earliest for a full-blown ease.

No change in policy is widely expected, leaving the refi rate at 4.50 percent and the deposit rate at 4.00 percent. The main focus will be on the bank's updated inflation forecast where any downward revision would be seen as boosting the chances of a cut in key rates next quarter.

The European Central Bank (ECB) sets monetary policy for all members of the Eurozone. The highest decision-making body is the Governing Council which comprises the six members of the Executive Board and the nineteen presidents of member central banks. Policy meetings take place roughly every six weeks but, due to the sheer number of participants, a rotation system has been introduced so that the total number of votes is capped at twenty-one. The benchmark interest rate is the rate on the main refinancing operations (refi rate) which sits between the marginal lending facility rate and deposit rate. The ECB's primary objective is price stability which since July 2021 is based upon a symmetric 2 percent target for the annual inflation rate.

The European Central Bank determines interest rate policy at their Governing Council meetings. The Council is composed of the six members of the Executive Council and 17 presidents of member central banks (Bank of France, Bundesbank, etc). The Governing Council meets now meets every six weeks. The European Central Bank had an established inflation ceiling of just less than 2 percent which was modified in July 2021 to 2 percent. The ECB's measure of inflation is the harmonized index of consumer prices (HICP). Each member of the Governing Council has one vote and decisions are reached by simple majority. In the event of a tie, the President has the casting vote. Only short-form minutes are released so how individual members voted is not known.

As in the United States, European market participants speculate about the possibility of an interest rate change at these meetings. If the outcome is different from expectations, the impact on European markets can be dramatic and far-reaching. The rate set by the ECB serves as a benchmark for all other interest rates in the Eurozone.

The level of interest rates affects the economy. Higher interest rates tend to slow economic activity; lower interest rates stimulate economic activity. Either way, interest rates influence the sales environment. In the consumer sector, few homes or cars will be purchased when interest rates rise. Furthermore, interest rate costs are a significant factor for many businesses, particularly for companies with high debt loads or who have to finance high inventory levels. This interest cost has a direct impact on corporate profits. The bottom line is that higher interest rates are bearish for the stock market, while lower interest rates are bullish.