ECB's Latest Bulletin on Neutral Interest Rate

The European Central Bank (ECB) has recently announced in its bulletin that the estimated neutral interest rate remains steady between 1.75% and 2.25%. This estimation, according to the ECB, has been broadly unchanged since the end of 2023.

Challenges in Utilizing the Neutral Rate for Policy Making

Despite the stability in the neutral rate estimate, the ECB highlighted the significant uncertainties surrounding the models used to calculate this rate. The central bank pointed out that the usefulness of the neutral rate in guiding monetary policy is limited due to various uncertainties and the focus on short-term interest rate instruments. This complexity makes it challenging to use the neutral rate as a definitive norm for setting rates during policy meetings.