ECB Maintains Status Quo In Final Meeting This Year
December 14 2017 - 3:29AM
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The European Central Bank left its monetary policy stance
unchanged on Thursday, after its announced its plan to trim asset
purchases at the start of next year in the previous session,
marking a calm close to what could be seen as a stellar year for
the single currency economy.
The Governing Council, led by ECB President Mario Draghi, left
the key interest rates unchanged after the conclusion of the final
policy-session for this year, in Frankfurt.
The main refi rate is currently at a record low zero percent and
the deposit rate at -0.40 percent. The marginal lending facility
rate is 0.25 percent.
"The Governing Council expects the key ECB interest rates to
remain at their present levels for an extended period of time, and
well past the horizon of the net asset purchases," the ECB
reiterated.
In the previous session in October, the bank decided to halve
the size of its monthly asset purchases to EUR 30 billion at the
start of next year and to continue till September 2018 or
beyond.
The bank confirmed this decision on Thursday and reiterated that
they will continue until there is a sustained adjustment in the
path of inflation consistent with the bank's inflation aim of
'below, but close to 2 percent'.
If the outlook becomes less favorable, or if financial
conditions become inconsistent with further progress towards a
sustained adjustment in the path of inflation, the Governing
Council stands ready to increase the APP in terms of size and/or
duration.
The bank opted the "lower for longer" style of tapering for a
second time this year and many hope that would be the beginning of
the end of ultra-easy monetary policy since the 2007-08 global
financial crisis.
However, economists do not expect any hike in the interest rates
until the latter half of 2019 as inflation is likely to remain
below the ECB's target.
The ECB also said that it will reinvest the principal payments
from maturing securities purchased under the APP for an extended
period of time after the end of its net asset purchases, and in any
case for as long as necessary.
Further, the bank said this will contribute both to favorable
liquidity conditions and to an appropriate monetary policy
stance.
Focus now shifts to Draghi who is scheduled to hold his
customary post-decision press conference at 8.30 am ET.
As the crucial announcement on stimulus was made in October,
Draghi is unlikely to dwell on the subject this month. Instead, he
is expected to spread Christmas cheer and head into the holiday
season with an upbeat outlook on the euro area economy.
Draghi is set to unveil the latest ECB staff macroeconomic
projections that will include the first round of forecasts for
2020.
In the September round, the Eurozone growth forecast for this
year was raised to 2.2 percent, while the projection for next year
was retained at 1.8 percent. The outlook for 2019 was also left
unchanged at 1.7 percent.
The inflation forecast for this year was retained at 1.5
percent, while the outlook for next year was cut to 1.2 percent.
The price growth forecast for 2019 was slashed to 1.5 percent.
The European Commission predicted in November that the Eurozone
is set for its fastest growth in a decade this year, thanks to
resilient private consumption, stronger global growth and falling
unemployment.
The executive arm of the European Union raised the euro area
growth forecast for this year to 2.2 percent. The projection for
next year was boosted to 2.1 percent. The commission forecast 1.9
percent expansion for 2019.
Meanwhile, the minutes of the October session revealed a growing
rift in the rate-setting body over the process of winding down the
stimulus, dubbed 'tapering', and forward guidance. Draghi is likely
to face several questions on the same.
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