FRANKFURT — The European Central Bank inched toward a first interest rate cut around the middle of the year, leaving its official interest rates unchanged but cutting its headline forecasts for both growth and inflation.

The ECB’s Governing Council left its key deposit rate at a record high of 4 percent at its Thursday meeting, noting that it’s still concerned about the domestic components of an inflation rate that has run above its 2 percent target for two-and-a-half years already.

“Although most measures of underlying inflation have eased further, domestic price pressures remain high, in part owing to strong growth in wages,” the central bank said in a statement.

At her subsequent press conference, ECB President Christine Lagarde all but ruled out a cut at the bank’s next policy meeting in April, saying the bank still wouldn’t have all the information it needed to be “confident” that inflation is returning sustainably to target.

While the eurozone’s headline inflation has eased to 2.6 percent as of February, Lagarde noted that services inflation was still running at 3.9 percent, with a nod to what she called “robust wage growth” and weak productivity.

“Since the ECB has been setting interest rates for the eurozone, it has lowered them 21 times, and never when core inflation was above 2.2 percent,” said S&P Global Ratings economist Sylvain Broyer. “Today, core inflation stands at 3.1 percent and will not fall below 2.2 percent before the summer.” With that in mind, he argued, June is the likeliest date for a first cut.

Friedrich Heinemann, an economist with the ZEW think-tank in Mannheim, agreed that the “surprisingly” strong drop in inflation and “poor economic data” boost the chances for a rate cut in June.

ECB staff now expect inflation to hit, or even slightly undershoot, the 2 percent target in both 2025 and 2026, which is generally seen as the relevant horizon for policy. For 2024 the inflation forecast was cut to 2.3 percent, from 2.7 percent in December.

Core inflation, which strips out energy and food prices, is expected to come in only fractionally higher than the headline number, averaging 2.6 percent in 2024, 2.1 percent in 2025 and 2.0 percent in 2026.

The ECB also cut its growth forecast for this year to 0.6 percent from 0.8 percent previously, with Lagarde remarking that the risks to the economy "remain tilted to the downside." The forecast for 2025 was left at 1.5 percent while 2026 was revised up marginally to 1.6 percent. S&P’s Broyer noted that the 2025/2026 forecasts looked on the high side, well above the eurozone’s medium-term growth potential of around 1 percent a year.

Both of the region’s two largest economies, Germany and France, have cut their own growth forecasts since the ECB’s last round of projections, and the ECB’s new figures came too late to include yesterday’s news out of Paris, signaling more heavy spending cuts.

Financial markets took the new forecasts as an indication that the ECB will start cutting rates in the next few months: Benchmark eurozone bond yields fell, with the yield on the interest-rate sensitive German two-year note hitting its lowest level in nearly a month. The Stoxx 600 equity index hit a fresh record high, but the euro strengthened a little against the dollar as markets bet simultaneously on rate cuts in the U.S.

Separately, Lagarde indicated in her press conference that the ECB is set to raise the pressure on eurozone governments to improve the state of Europe’s capital markets, having already warned that the region needs to do everything possible to mobilize the funds needed for the green transition, greater defense spending, and the various other challenges facing the Continent.

She remained resistant, however, to the growing pressure on Europe to confiscate billions of euros in Russian central bank assets held in clearinghouses across the eurozone.

“While there is no doubt in anybody's mind that Ukraine will need significant financing for its completely legitimate reparation program,” she argued, “the terms under which it is deployed by those who will support Ukraine need to be agreed and need to respect the international legal environment in which we operate.”

She stressed that this financing must be “particularly attentive to the international monetary order and the rule of law which has been enforced for decades.”

In addition, Lagarde said she expects the ECB to announce next week the result of its "operational framework review," which will set out the principles by which it conducts monetary policy in future. The new rules will effectively acknowledge that a decade of quantitative easing and post-2008 changes to bank regulation have condemned it to keep a far greater presence in financial markets than it did before the Global Financial Crisis.

“We don’t expect any immediate impact of potential strategy changes on the monetary policy stance,” said Berenberg Bank’s Salomon Fiedler in a note to clients. “As the ECB is unwinding its asset purchase programs only very gradually, the eurozone will likely remain awash in excess reserves for years to come.”