Eurozone Monetary Policy July 2018


Eurozone: ECB leaves rates unchanged in uneventful meeting

July 26, 2018

The European Central Bank (ECB) did not deliver any surprises at its 26 July monetary policy meeting, leaving its main interest rates unchanged and reiterating the highlights from its June meeting. Accordingly, the Bank left the refinancing rate at 0.00%, the marginal lending rate at 0.25% and deposit facility rate at minus 0.40%. In addition, the ECB again emphasized that it plans to conclude its asset purchases program at the end of December 2018 and halve the pace of purchases from the current EUR 30 billion per month to EUR 15 billion per month—provided that incoming data plays out as expected.

The main messages in ECB President Mario Draghi’s accompanying statement were virtually unchanged from the previous meeting. Draghi reiterated that interest rates are expected to remain at the present levels until at least the end of summer 2019 and that accommodative monetary policy is still needed to support higher price pressures. Although inflation recently rose above the ECB’s target of close to, but below, 2.0%, the uptick was driven by higher oil prices, while underlying price pressures remained moderate. Draghi also continued to assess the economy positively, despite recent downbeat data, and that risks to the Eurozone’s growth prospects remain broadly balanced.

Looking forward, the ECB is expected to keep monetary policy conditions accommodative, proceeding slowly with a gradual normalization of monetary policy. While the end of QE will be a de facto tightening conditions, Draghi confirmed that the ECB will reinvest the principal payments from maturing securities for an extended period of time and low interest rates will also keep conditions accommodative. Commenting on the ECB’s decision, analysts from Nomura stated that:

“Our view, unsurprisingly after today’s limited comments, remains unchanged – the first rise in the depo rate (by 15bp) in September 2019 with a further 20bp of rate rises in two instalments over the subsequent nine months.”

All our analysts expect that the refinancing rate will remain unchanged for the rest of this year at 0.00%. For 2019, our panelists see the policy rate ending the year at 0.24%.


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Eurozone Monetary Policy Chart

Euro Monetary Policy July 2018 0

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

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