Eurozone Monetary Policy


ECB keeps rates unchanged at record low in December

At its 5 December meeting, the European Central Bank (ECB) kept the refinancing rate unchanged at the record low of 0.25%, a decision the market had expected. Monetary authorities 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."

The decision comes amid a broadly unchanged outlook for the Euro area economy. According to the ECB, recent indicators are consistent with a positive growth rate for Q4 2013, marking a continuation of the recovery started in Q2. The Bank stated that recovery should continue "at a slow pace" throughout 2014 and 2015. Against this backdrop, the ECB upgraded its GDP forecast for 2014 and now sees the Euro area economy expanding 1.1% (September projection: +1.0%). For 2015, the ECB expects the economy to expand 1.5%. Risks to the outlook remain on the downside and are related to, "higher commodity prices, weaker than expected domestic demand and export growth, and slow or insufficient implementation of structural reforms in euro area countries."

Regarding the outlook for price developments, the Bank believes that inflation will remain around the 0.9% rate recorded in November over the course of the coming months. Against this backdrop, the ECB expects inflation to average 1.1% in 2014 (September projection: 1.3%) and 1.3% in 2015. That said, the Bank maintains the view that risks to the inflation outlook are broadly in balance.

Within this setting, FocusEconomics panelists expect the policy rate to end 2014 at 0.48%.

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Euro Monetary Policy December 2013

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