Eurozone Monetary Policy


Eurozone: ECB keeps rate on hold, stresses commitment to unconventional measures

July 3, 2014

At its meeting on 3 July, the European Central Bank (ECB) left the main refinancing rate unchanged at a record-low of 0.15% in a decision that market analysts had expected. The ECB also left all the other main interest rates unchanged. In particular, the ECB left the deposit rate—the rate banks receive for parking funds at the ECB—in negative territory at minus 0.10%. At its June meeting, the ECB took the decision to adopt a negative rate on its deposits and thus became the first major central bank ever to do so.

The ECB kept rates on hold amid a broadly unchanged outlook for the Euro area economy. Recent economic indicators suggest that the economic recovery is continuing, although at a very gradual pace. Risks to the outlook remain on the downside. According to the ECB, “geopolitical risks, as well as developments in emerging market economies and global financial markets, may have the potential to affect economic conditions negatively, including through effects on energy prices and global demand for euro area products.”

Regarding the outlook for price developments, the ECB acknowledged that inflation will remain low over the course of 2014, “before gradually increasing during 2015 to reach levels closer to 2% towards the end of 2016.” That said, inflation expectations remain firmly anchored and risks to the inflation outlook are broadly in balance.

In the statement that accompanied the ECB’s decision, President Mario Draghi reiterated the forward guidance adopted in the previous meeting, stating that the ECB continues, “to expect the key ECB interest rates to remain at present levels for an extended period of time.” Moreover, Draghi stressed that, “the Governing Council is unanimous in its commitment to also using unconventional instruments within its mandate, should it become necessary to further address risks of too prolonged a period of low inflation.” Reinforcing the commitment, Draghi stated that the ECB is, “strongly determined to safeguard the firm anchoring of inflation expectations over the medium to long term.”

The ECB also presented more details on the Targeted Long-Term Refinancing Operations (TLTRO), a scheme to provide cheap long-term loans for banks that was adopted last month, and reiterated that it’s doing preparatory work related to purchases of asset-backed securities (ABS). In addition, the ECB announced that it would reduce the frequency of its monetary policy meetings—from the current four-week cycle to a six-week cycle—beginning in January 2015, at which time it will publish regular accounts of the Governing Council’s meetings.

Taking into account the recent developments, FocusEconomics panelists expect the policy rate to end 2014 at 0.14% and 2015 at 0.23%.

Author:, Head of Data Solutions

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Eurozone Monetary Policy Chart

Euro Monetary Policy July 2014

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

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