Euro Area Monetary Policy January 2020

Euro Area: ECB keeps accommodative stance unchanged in January

January 22, 2021

On 21 January, the European Central Bank (ECB) decided to leave rates on the main refinancing operations, the marginal lending facility and the deposit facility unchanged at their respective all-time lows of 0.00%, 0.25% and -0.50%. Moreover, it left the total amount of its stimulus measures unchanged to assess the impact of recent easing. In December, the ECB agreed upon a raft of measures to support the recovery, including extending its emergency quantitative easing program, continuing the reinvestment of maturing securities and launching a series of auctions to finance banks at negative rates.

The economic recovery lost momentum in Q4, as the reintroduction of containment measures throughout Europe weighed on activity, especially in the services sector. Risks to the short-term outlook remain tilted to the downside due to the latest coronavirus restrictions and possible further flare-ups of the virus, although the rollout of vaccines, favorable financing conditions and supportive fiscal stances should support the economy in the medium term.

Against this backdrop, although the Bank reiterated that “an ambitious and coordinated fiscal stance remains” to fuel the recovery, it also stressed that fiscal measures must “remain targeted and temporary in nature” and highlighted how crucial the implementation of productivity-enhancing structural policies will be to raise potential growth and increase economic resilience.

Commenting on the latest ECB decision, Carsten Brzeski, chief Eurozone economist at ING, noted:

“The ECB remains happy at the sidelines and has kept all options open. As boring as this might sound, it probably was the best thing to do. In the absence of any severe economic accident, the ECB is likely to stick to this line at least until late summer.”

Our panelists project the refinancing rate to end both 2021 and 2022 at 0.00%.

Author: Massimo Bassetti, Senior Economist

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Euro Area Monetary Policy Chart

Euro Area Monetary Policy January 2021

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

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