Eurozone Monetary Policy July 2017


Eurozone: ECB refrains from talk of tapering

July 20, 2017

The European Central Bank (ECB) decided to keep interest rates unchanged at its 20 July meeting and made no changes to its bond-buying program. The refinancing rate, the marginal lending rate and the deposit facility rate remain at 0.00%, 0.25% and minus 0.40%, respectively. Importantly, the Bank’s communique was almost completely unchanged from its last monetary policy and struck a dovish tone despite firmer economic activity and returning price pressures.

Overall, the ECB’s monetary policy stance still remains ultra-accommodative despite robust activity in the common-currency bloc. While the economy’s momentum is strong, price pressures still remain uneven across economies and inflation came in at 1.3% in June, far off from the Bank’s target of close to, but below 2.0%. In the accompanying press conference, President Mario Draghi stressed that underlying price pressures remain low and are expected to increase only gradually going forward.

All-in-all the meeting was largely uneventful and the Bank kept with the status quo. Despite an improving economic backdrop, Draghi did not talk about tapering its bond buying program and left its forward guidance unchanged from the last meeting. Draghi commented that risks to the Eurozone growth outlook are broadly balanced, while refraining from any statement on risks to its inflation outlook. Moreover, Draghi continued to take a dovish tone regarding the ECB’s bond-buying program, stating that it could be increased in size or duration if the outlook were to turn less favorable. During the question and answer session of the press conference, Draghi added that discussions over the future of quantitative easing will likely take place in the fall.

There is a strong consensus on the path of interest rates going forward and all of the analysts surveyed by FocusEconomics expect the ECB to keep the policy rate unchanged at the current record-low of 0.00% this year. For next year, our panelists see the policy rate ending the year at 0.04%.

Author: Angela Bouzanis, Senior Economist

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Eurozone Monetary Policy Chart

Euro Monetary Policy June 2017 1

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

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