Eurozone Monetary Policy


ECB leaves rates unchanged in December

At its 6 December policy meeting, the European Central Bank (ECB) kept the refinancing rate unchanged at a record low of 0.75%. The decision, which was widely expected by the market, represents the fifth consecutive month in which the ECB leaves the policy rate unchanged. According to the accompanying statement, monetary authorities see economic activity remaining weak in the fourth quarter despite improved confidence in financial markets.

This weakness is expected to extend over the rest of the year and a gradual recovery is expected to take place only by the end of 2013, as the effects of the accommodative policy stance start passing through the real economy. The more pessimistic assessment was reflected in the new ECB growth projections, which put GDP growth in a range of between -0.6% and -0.4% in 2012 (September projection: -0.6% / -0.2%) and between -0.9% and -0.3% in 2013 (September projection: -0.4% / 1.4%).

For 2014, the ECB expects GDP to grow between 0.2% and 2.2%. Regarding price developments, the ECB sees inflation falling below 2% next year and expects price pressures to remain moderate, on the back of "weak economic activity in the Euro area and well-anchored long-term inflation expectations". Against this backdrop, the ECB sees inflation at 2.5% in 2012 (September forecast: 2.3% / 2.7%), while expecting inflation to sit between 1.1% and 2.1% in 2013 (September projection: 1.0% / 2.2%). For 2014, the ECB expects inflation to range between 0.6% and 2.2%.

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Euro Monetary Policy December 2012

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