Eurozone Monetary Policy


Eurozone: ECB leaves rates unchanged

May 2, 2013

At its policy meeting on 6 June, the European Central Bank (ECB) left the refinancing rate at 0.50%. The decision, which matched market expectations, follows a 25 basis points rate cut at the previous month's meeting. In addition, the ECB left both the lending and the deposit rate unchanged.

Following the 0.2% contraction in GDP recorded in the first quarter, monetary authorities believe that economic activity "should stabilise and recover in the course of the year, albeit at a subdued pace". According to the ECB, a gradual recovery will be driven by exports, which will benefit from the improvement in global demand, while the accommodative policy stance will sustain domestic demand.

Risks to the outlook remain, nonetheless, on the downside and relate to "weaker than expected domestic and global demand and slow or insufficient implementation of structural reforms in euro area countries". Against this backdrop, the ECB trimmed its growth projections. The ECB now sees GDP contracting 0.6% in 2013 (March projection: -0.9% / -0.1%) and then recovering to a 1.1% expansion in 2014 (March projection: 0.0% / 2.0%). FocusEconomics panellists expect the economy to contract 0.5% in 2013, which is down 0.1 percentage points from last month's forecast. For 2014, panellists expect the economy to expand 0.9%.

Regarding the outlook for price developments, the Bank maintains the view that risks are on balance. Inflation is seen dropping below 2% "in the coming months". Against this backdrop, the ECB expects inflation to average 1.4% in 2013 (March projection: 1.2% / 2.0%) and 1.3% in 2014 (March projection: 0.6% / 2.0%). FocusEconomics Consensus Forecast participants see inflation in the Euro area averaging 1.6% in 2013, which is down 0.1 percentage points from last month's forecast. For 2014, panellists expect inflation to also average 1.6%.

Finally, as already announced in the previous month's statement, the ECB reiterated that it is looking into non-standard policy measures, in particular to address the lack of credit for small and medium enterprises (SMEs). President Draghi did not provide details but reassured that "these measures are all on the shelf". Against this backdrop, FocusEconomics panellists expect the policy rate to end 2013 at 0.52% and 2014 at 0.61%.

Author:, Head of Data Solutions

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