Eurozone Monetary Policy


ECB keeps rates on hold in February

At its 6 February meeting, the European Central Bank (ECB) kept the refinancing rate unchanged at the record low of 0.25% as the market had expected.

The ECB is maintaining a broadly unchanged outlook on the Euro area economy. According to the ECB, recent data suggest that the recovery continued through the end of 2013. Going forward, economic activity will continue to pick up, although at a slow pace, as it will be supported by the recovery in domestic demand and the effects of the ECB's accommodative monetary policy stance. Risks to the outlook remain on the downside; the ECB also mentioned the recent turmoil in emerging markets as one of the risks to the outlook.

Regarding price developments, the Bank acknowledged that January's preliminary estimate of 0.7% inflation was "lower than generally expected". The ECB expects that inflation will stay at current levels, on the basis of "prevailing future prices for energy". Monetary authorities still don't see a deflationary threat materializing; inflation expectations for the longer run remain "firmly anchored" in line with the ECB's target of, "below, but close to, 2%," which will become more clear in March, when the ECB will publish a forecast for two years ahead for the first time.

In the statement accompanying the ECB's decision, President Mario Draghi reiterated the forward guidance adopted in the previous meeting, stating that the refinancing rate will remain, "at present or lower levels for an extended period of time," and that monetary authorities, "remain firmly determined to maintain the high degree of monetary accommodation and to take further decisive action if required." Taking this setting into account, FocusEconomics panelists expect the policy rate to end 2014 at 0.48% and 2015 at 0.60%.

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