ECB keeps rates on hold but acknowledges some inflation cooling

"Inflation (projections have) been revised down, in particular for 2024 which mainly reflects a lower contribution from energy prices," the ECB said in a statement.

The more benign outlook comes as the bank lowered its inflation projections for the second consecutive quarter, putting price growth at 2.3% this year and at its 2% target next year.

Inflation has been on a downward trend for months as energy prices dip and the 20-country euro zone economy stagnates for the second year in a row.

But underlying price pressures, particularly from wages in the bloc's vast services sector, remain uncomfortably high, raising the that price trends could reverse.

That is why the ECB has insisted that rate cuts only come once the bank is sure that wage restraint is becoming established and the inflation slowdown is durable.

"Although most measures of underlying inflation have eased further, domestic price pressures remain high, in part owing to strong growth in wages," the bank added.

Investors see a total three or four rate cuts this year with the first move in June, taking the 4% deposit rate down to 3.25% or 3% by December.

While only a few policymakers have discussed specific dates for a first rate cut, several have mentioned June and others have said any move should come only after crucial wage data becomes available in May.

Attention now turns to ECB President Christine Lagarde's 1345 GMT press conference, where she will be quizzed about the timeline of ECB policy moves and the triggers for action.