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.