Artificial intelligence predicts a new interest rate removal in the euro area

The use of artificial intelligence will increase accuracy in the forecasting of the European Central Bank’s monetary policy moves, according to a study by the German Institute for Economic Research (DIW), published in Berlin on Wednesday.

The researchers analyzed the ECB communications from January 2019 to March 2025, using a specially trained text analysis model based on artificial intelligence (AI).

The program looks at each sentence of the ECB’s statements individually and analyzes whether it is a signal for restrictive, expansionist or neutral monetary policy, said DIW expert Kerstin Bernot.

In an expanded forecasting model – using text analysis and taking into account inflation, insecurity of economic policy and previous interest rates course – the accuracy of estimates of interest rates can be increased from about 70% to 80%, the study showed.

According to him, « the choice of words in speeches, press releases or interviews is never accidental, but carefully considered and allows to draw conclusions about the future direction of monetary policy. »

For the forthcoming ECB meeting on Thursday, the forecast model signals a greater probability of further reduction in interest rate, despite the recent more neutral tone.

Reuters surveyed expect the ECB to reduce its basic interest rate from 2.5% to 2.25%, as duties limit trade and uncertainty weighs on consumption and investment.