The European central bank left interest rates unchanged as expected on Thursday but acknowledged that inflation is falling faster than previously expected, indirectly potentially paving the way for a rate cut later this year.
The ECB has kept borrowing costs at their highest level since September and has so far rejected any calls for a rate cut, although policymakers are now publicly admitting that such a move will take place and only time will tell.
This improved outlook comes as the bank lowered its inflation forecast for the second quarter in a row, placing price growth at 2.3% this year and at its 2% target next year.
Inflation has shown a downward trend for several months in line with falling energy prices and economic stagnation in the European zone for the second year in a row.
Waima is the same with price pressure, especially from wages in the service sector where it is still high which can increase the risk that the price trend can reverse.
It is on that basis that the ECB has insisted that rate cuts will only take place when the bank is confident that wage restraint is a reality and that the slowdown in inflation is durable.
"Although most measures of core inflation have declined, domestic price pressures remain high, partly due to strong growth in wages," the bank added.
Investors see three or four rate cuts overall this year with the first move in June, dropping the 4% deposit rate to 3.25% or 3% by December.
Although few policymakers have discussed specific dates for the first rate cut, some lawmakers have mentioned June and others have said that any move should be made only after important wage data in May.
