Eurozone Monetary Policy


Eurozone: ECB provides details on ABS purchase program, does not mention target size

October 2, 2014

At its most recent meeting, which took place on 2 October, the European Central Bank (ECB) provided more details regarding the asset-backed securities (ABS) and covered bond purchase plan that were announced in September. In addition, the ECB maintained the main refinancing rate unchanged at the record low of 0.05%. The ECB also kept the deposit rate—the rate banks receive for parking funds at the ECB—at minus 0.20% and the marginal lending rate at 0.30%. Market analysts had anticipated the Bank’s decision to maintain the rates unchanged.

The decision came amid a broadly-unchanged outlook for the European economy. The ECB acknowledged that growth momentum is weakening, but maintains that, looking ahead to next year, “the outlook for a moderate recovery in the euro area remains in place.” Risks to the outlook remain on the downside and are related to the fact that, “the recent weakening in the euro area’s growth momentum, alongside heightened geopolitical risks, could dampen confidence and, in particular, private investment.” Regarding inflation, the Bank did not mention anchored inflation expectations, which suggests that the ECB is still worried about price developments in the medium term.

Regarding the ABS and covered bond purchase programs, the ECB announced that it would start buying covered bonds in the second half of October and that ABS purchases would start in Q4 2014. Both the programs will last two years. However, the Bank did not make reference to a maximum or minimum amount, nor to the total scope of the purchases. ECB President Mario Draghi only noted that, “purchases will have a sizeable impact on our balance sheet.” Failure to mention the size of the ABS purchase plan disappointed markets analysts, who were expecting the ECB to announce an ambitious target for its purchase plan in order to stem the threat of a deflationary spiral and prop up the ailing Eurozone economy.

Within this setting, 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 October 2014

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

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