Eurozone Monetary Policy


ECB ready to activate OMTs

At its policy meeting on 4 October, the European Central Bank (ECB) kept the refinancing rate unchanged at a record low of 0.75%. The decision, which matched market expectations, represents the third consecutive month in which the ECB leaves the refinancing rate unchanged. In the accompanying statement, monetary authorities noted that "economic indicators, in particular survey results, confirm the continuation of weak economic activity in the third quarter of 2012, in an environment characterised by high uncertainty". The ECB believes that the Euro area economy will remain weak in the near term and recover "only very gradually" in the longer run. Risks to the growth outlook remain on the downside, amid "ongoing tensions in several euro area financial markets and the potential spillover to the Euro area real economy." Regarding price developments, the ECB maintained its view that inflation will stay above 2% in 2012 on the back of higher energy prices and recent increases in indirect taxes by national governments, before falling below 2% over the course of next year. Monetary authorities believe that in the current environment of modest economic growth, price pressures should remain subdued and that current levels of inflation "should [...] remain transitory and not give rise to second-round effects". According to the ECB, the announcement of the Outright Monetary Transactions (OMT) programme has already contributed to alleviate "ongoing tensions in some Euro area financial markets". Monetary authorities reaffirmed their intention to act and undertake bond purchases once a country in need of external aid fulfils the requirements established by the bond-buying scheme.

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Euro Area Monetary Policy October 2012

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