Eurozone Monetary Policy


Eurozone: ECB keeps rates unchanged, hints at further measures in months ahead

December 4, 2014

The European Central Bank (ECB) decided to keep the main refinancing rate unchanged at the record low of 0.05% at its most recent meeting, which took place on 4 December. The ECB also kept the deposit rate—the rate banks receive for parking funds at the ECB—at minus 0.20% and left the marginal lending rate at 0.30%. Market analysts had expected that the Bank would decide to maintain the rates unchanged.

The decision came amid a more subdued outlook for the Euro area economy. According to the ECB, recent data confirm that there will be, “a weaker growth profile in the period ahead.” This was reflected in the December update of the ECB staff projections, which set 2015 GDP growth at 1.0%, marking a sizable downward revision to September’s projection of 1.6% growth. The outlook for 2016 was also revised down from the 1.9% expected in September to 1.5%. Risks to the outlook remain on the downside and are related to both heightened geopolitical risks, which could, “dampen confidence and, in particular, private investment,” and to EU Member States’ insufficient implementation of structural reforms.

The Bank recognized that inflation moderated in November, mainly reflecting the development in oil prices. The ECB revised down its inflation projections and now expect it to come in at 0.7% in 2015, which is down from September’s 1.1% projection. In 2016, the Bank sees inflation of 1.3% (September’s projection: +1.6%). The Bank acknowledged that, “annual HICP inflation rates could experience renewed downward movements, given the recent further decline in oil prices.”

According to analysts, the monetary policy statement made it clear that the ECB will adopt further unconventional measures in early 2015, including purchases of sovereign bonds. According to the ECB’s statement, “early next year the Governing Council will reassess the monetary stimulus achieved. […] Should it become necessary to further address risks of too prolonged a period of low inflation, the Governing Council remains unanimous in its commitment to using additional unconventional instruments within its mandate. This would imply altering early next year the size, pace and composition of our measures.”

Within this setting, FocusEconomics panelists expect the policy rate to end 2015 at 0.05% and 2016 at 0.07%.

Author:, Head of Data Solutions

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