AI Boosts Accuracy in Predicting ECB Monetary Policy Moves, DIW Study Finds

The use of artificial intelligence (AI) is set to enhance the accuracy of predictions for European Central Bank (ECB) monetary policy moves, according to a recent study by the German Institute for Economic Research (DIW Berlin). Researchers at DIW Berlin conducted an analysis of the ECB's communications from January 2019 to March 2025 using a specialized text analysis model powered by AI. This model evaluates each sentence of the ECB's statements to determine if it signals a restrictive, expansionary, or neutral monetary policy. DIW expert Kerstin Bernoth, who authored the study, emphasized the importance of language in central bank communication. "Central banks use language as a tool for monetary policy," Bernoth explained. "The words chosen in speeches, press releases, and interviews are carefully crafted and provide insights into the future direction of monetary policy." The study found that combining the AI-driven text analysis with traditional forecasting factors, such as inflation, economic policy uncertainty, and the historical interest rate path, can boost the accuracy of interest rate change predictions from about 70% to 80%. For the upcoming ECB meeting on Thursday, the forecast model indicates a high likelihood of another interest rate cut, despite the recent more neutral tone in communications. Analysts polled by Reuters predict the ECB will reduce its key interest rate from 2.5% to 2.25%. This decision is anticipated due to tariffs that are hampering trade and the uncertainty that is affecting consumer spending and investment. The study demonstrates the potential of AI in financial forecasting and underscores the significance of linguistic analysis in understanding central bank policies. By leveraging AI, policymakers and financial analysts can make more informed decisions, potentially leading to better economic outcomes.