Euro Area Monetary Policy

Euro Area

Euro-Area: ECB more pessimistic on economic outlook, signals possible easing in near term

April 4, 2013

At its 4 April 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 eighth consecutive month in which the ECB leaves the policy rate unchanged.

While the Bank's assessment regarding the economic outlook remained broadly unchanged compared to February's statement, the ECB appears to have a slightly more pessimistic view. In its statement, the reference to a stabilization of economic activity ("albeit at low levels") in the first part of the year was dropped, as recent economic indicators "confirm that the economic weakness" experienced in Q4 2012 "extended into the early part of the year". The ECB continues to expect a gradual recovery in the second half of 2013, "subject to downside risks".

Regarding the outlook for price developments, the ECB maintains the view that risks are on balance. Currently, inflation is in line with the Bank's target of "inflation rates of below, but close to, 2% over the medium term".

In the press conference following the monetary policy announcement, ECB President Mario Draghi stated that the ECB had been discussing non-standard measures, in particular to address the lack of credit for small and medium enterprises (SMEs). Moreover, amid signals of a continued deterioration in economic activity in the Euro area, Draghi stated that the ECB "will assess all incoming data and stand ready to act". According to analysts, this suggests that monetary authorities are opening the door for further monetary easing in the coming months. Against this backdrop, FocusEconomics panellists expect the policy rate to end 2013 at 0.66% and 2014 at 0.77%.

Author:, Head of Data Solutions

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