Eurozone Monetary Policy July 2016


ECB awaits data following Brexit, holds rates

In an environment of heightened uncertainty following the Brexit vote, the European Central Bank (ECB) decided to stay the course and keep the main interest rates unchanged at its 21 July meeting, although the Bank did signal a willingness to ease policy going forward if needed. The refinancing rate, the marginal lending rate and the deposit facility rate were kept steady at 0.00%, 0.25% and minus 0.40%, respectively. The ECB also maintained its asset purchase program at EUR 80 billion a month.

In the accompanying press conference, ECB President Mario Draghi stated that risks to the Eurozone’s growth outlook are tilted to the downside due to the outcome of the UK’s referendum and other geopolitical uncertainties. However, Draghi emphasized that the financial markets have shown resilience in the face of heightened uncertainty and that the region’s Central Banks stand ready to provide liquidity if required. In addition, Draghi added that the loose monetary conditions and a solid regulatory framework have contained the shocks. Looking forward, Draghi stated that the ECB will reassess macroeconomic conditions in the Eurozone when more information is available, and kept the door open for further easing by stating that, if needed, the Bank will, “act by using all the instruments available within its mandate.”

Commenting on the decision, Economists at DBS point out:

“Thursday’s remarks reinforce our view that the ECB will be in an assessment mode in the coming months. While the BOE is widely expected to ease policy further, the ECB’s policy moves will be dependent on incoming soft and hard data. Updated staff projections are due in Sept, where we look for GDP estimates to be revised down slightly, while inflation is held steady vis-à-vis June’s update. Sentiments have nonetheless taken a hit, as seen in the sharp fall in July’s Zew and Eurozone consumer confidence indices.”

Within this setting, all the analysts surveyed by FocusEconomics expect the ECB to keep the policy rate unchanged at the current record-low of 0.00% this year. For next year, our panelists see the ECB keeping the main refinancing rate steady at 0.00%.

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Eurozone Monetary Policy Chart

Euro Monetary Policy July 2016 1

Note: ECB Refinancing Rate in %.
Source: European Central Bank (ECB).

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