Eurozone Monetary Policy June 2017


Eurozone: ECB holds course, however the bank's easing bias may have ended

June 8, 2017

The European Central Bank (ECB) decided to keep interest rates unchanged at its 8 June meeting and made no changes to its bond-buying program. The refinancing rate, the marginal lending rate and the deposit facility rate remain at 0.00%, 0.25% and minus 0.40%, respectively. However, firmer economic activity led the Bank to tweak its forward guidance and remove some easing bias from the accompanying speech.

The ECB’s monetary policy stance still remains ultra-accommodative despite a recent rise in price pressures and a strong Q1 GDP print. In the accompanying press conference, President Mario Draghi stressed that measures of underlying price pressures remain subdued and that a substantial degree of accommodation is needed. However, a statement referencing further rate cuts if needed was removed from the Bank’s communique, suggesting that the Bank’s easing bias has ended and rate cuts are no longer a possibility. However, Draghi still struck a highly accommodative tone towards its quantitative easing program stating that it could be extended if necessary.

All-in-all the meeting was relatively uneventful, meeting market expectations and continuing the status quo. The ECB’s GDP forecast was upgraded only marginally to 1.9% in 2017 and 1.8% in 2018 and the inflation forecast revised down to 1.5% for 2017, below the FocusEconomics Consensus of 1.7%. An overall cautious tone and low inflation forecast suggest that the status quo will likely continue despite recent positive data developments.

There is a strong consensus on the path of interest rates going forward and all of the analysts surveyed by FocusEconomics expect the ECB to keep the policy rate unchanged at the current record-low of 0.00% this year. For next year, our panelists see the policy rate ending the year at 0.05%.


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Eurozone Monetary Policy Chart

Euro Monetary Policy June 2017

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

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