Eurozone: ECB keeps rates unchanged in October, announces banking sector review
October 23, 2013
At its 2 October meeting, the European Central Bank (ECB) kept the refinancing rate unchanged at the record low of 0.50%, a decision the market had expected. Monetary authorities reiterated the forward guidance adopted in the previous meeting, stating that the refinancing rate will remain, "at present or lower levels for an extended period of time."
The decision comes amid a broadly unchanged outlook for the European economy compared to last month. The economy exited recession in the second quarter and is expected to have grown in the third, albeit at a slower pace. Regarding future developments, the ECB continues to expect a "gradual recovery" in the region. Risks to the outlook remain on the downside and are related to, "developments in global money and financial market conditions and related uncertainties," which, "may have the potential to negatively affect economic conditions." Regarding the outlook for price developments, the Bank maintains the view that risks are in balance. Inflation is expected to, "remain low in the coming months."
Later in the month, on 23 October, the ECB announced a "comprehensive assessment" of the region's banking sector in preparation for the institution taking up the role of banking supervisor in November 2014. The exercise, which will begin in November of this year and run for three months, will include three elements: a supervisory risk assessment, a review of the quality of banks' assets and, finally, a stress test, "to examine the resilience of banks' balance sheet to stress scenarios." According to a statement by ECB President Mario Draghi, the final aim of the exercise is, "to strengthen private sector confidence in the soundness of euro area banks and in the quality of their balance sheets."
Within this setting, FocusEconomics panelists expect the policy rate to end 2013 at 0.46% and 2014 at 0.48%.
Author: Armando Ciccarelli, Head of Data Solutions