ECB's Neutral Rate Estimate Holds Steady

The European Central Bank (ECB) has reaffirmed its estimate for the neutral interest rate, stating it remains within the range of 1.75% to 2.25%. This assessment, detailed in a bulletin released on Friday, indicates that the real neutral rate has seen little change since the conclusion of 2023.

Challenges in Utilizing the Neutral Rate

Despite the stability in the neutral rate estimate, the ECB highlighted significant challenges in its application. The bank noted that models for calculating the neutral rate are fraught with uncertainty, which limits the rate's effectiveness in guiding monetary policy. The ECB cited 'multiple types of uncertainty and the focus on the short-term interest rate instrument' as key factors complicating the use of the neutral rate as a definitive norm for setting rates during policy meetings.