ECB Keeps Rates, Forward Guidance Unchanged
12 Décembre 2019 - 09:15AM
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The European Central Bank left its key interest rates, asset
purchases and forward guidance unchanged on Thursday, in the first
policy session chaired by the new chief Christine Lagarde.
The Governing Council decided to hold the refi rate unchanged at
a record low 0 percent, the deposit rate at -0.50 percent and the
marginal lending rate at 0.25 percent. The move was in line with
economists' expectations. The previous change was a 10 basis points
cut in the deposit rate in September. The bank also retained its
forward guidance on both interest rates and asset purchases.
"The Governing Council expects the key ECB interest rates to
remain at their present or lower levels until it has seen the
inflation outlook robustly converge to a level sufficiently close
to, but below, 2 percent within its projection horizon, and such
convergence has been consistently reflected in underlying inflation
dynamics," the bank said. A fresh round of asset purchases began on
November 1 at a monthly pace of GBP 20 billion. The central bank
retained its guidance on the stimulus measure, saying it "expects
them to run for as long as necessary to reinforce the accommodative
impact of its policy rates, and to end shortly before it starts
raising the key ECB interest rates."
Lagarde is set to make her first post-decision press conference
at 8.30 am ET.
Markets will be closely watching how the former IMF managing
director communicates the ECB's message on the euro area economy
amid sluggish growth and low inflation. Lagarde, a former French
finance minister, came to the helm at the ECB after Mario Draghi's
term ended on October 31.
She has already announced that a strategic review of the ECB
policy will start soon. "We don't expect Lagarde to structurally
change the introductory statement but will be looking for any
changes in style and language in the Q&A session," ING
economist Carsten Brzeski said last week.
Lagarde is likely to face a volley of questions on the planned
strategic review, and whether the split in the Governing Council
over the recent stimulus measures has healed or not. The strategic
review is likely to be a long, drawn-out affair with a wide remit,
Captial Economics economist Andrew Kenningham said ahead of the
latest policy session.
The ECB currently targets inflation "below, but close to 2
percent". "In practice, any change to the target is likely to be
controversial, take a long time to agree and ultimately be pretty
small," the economist said. While Thursday's meeting will be the
first chance for the Governing Council officially to discuss the
review, President Lagarde may want to wait for the new Council
members, Isabel Schnabel and Fabio Panetta, to take up their posts
in January before finalizing its scope, Kenningham added. Eurozone
interest rates were raised last in July 2011 by 25 basis points.
Lagarde will also unveil the latest set of ECB staff macroeconomic
projections for Eurozone. "The latest round of staff projections
will very likely confirm the September projections," Brzeski
said.
"The first official ECB forecasts for 2022 are of more
relevance," the economist added. In September, the ECB staff cut
the euro area inflation forecast for this year to 1.2 percent and
the outlook for next year to 1 percent. The projection for 2021 was
trimmed to 1.5 percent.
Eurozone growth forecast for this year was cut to 1.1 percent
and the projection for next year was lowered to 1.2 percent. The
2021 growth outlook was retained at 1.4 percent.
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