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.