Thursday, February 6, 2014

ECB holds refi rate at 0.25%, Draghi to comment later

    The European Central Bank (ECB) maintained its benchmark refinancing rate at 0.25 percent, along with its other policy rates, and said it's president, Mario Draghi, would comment on the decision at a press conference later today.
    Most economists had expected the ECB to hold its rate steady, though doubts had crept in following news that the inflation rate in the 18 nations sharing the euro currency again fell to 0.7 percent in January, well below the ECB's target of inflation below, but close to 2.0 percent.
    The last time the inflation rate fell to 0.7 percent was in October and this was accompanied by a 25 basis point rate cut by the ECB. Last year the ECB cut its rate by 50 basis points to the current 0.25 percent. The ECB's other main rates, the marginal lending rate and the deposit rate are at 0.75 percent and 0.0 percent, respectively.
    Last month Draghi repeated the ECB's view that inflation is expected to remain low for a prolonged period and around current levels in coming months. The ECB currently forecasts average inflation of only 1.1 percent in 2014 and 1.3 percent in 2015.

    At his press conference last month, Draghi also said the ECB was ready to counter any rise in market interest rates and would maintain an accommodative monetary stance for as long as its takes while policy rates would remain at the current, or lower levels, for an extended period.
    Concerned over the possibility that a rise in money market rates could delay the economic recovery, Draghi also said the bank was ready to consider all available instruments and would "take further decisive action if required" to maintain the high degree of monetary accommodation.
    Draghi also sharpened the tone of the ECB's forward guidance adopted in July, saying the ECB's governing council "strongly emphasizes" that it will maintain an accommodative stance of monetary policy for as long as necessary.
    The euro area's economy is slowly improving, with the ECB forecasting growth of 1.1 percent this year and 1.5 percent in 2015 after a contraction of 0.4 percent in 2013 and a 0.6 percent drop in Gross Domestic Product in 2012.


Post a Comment