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.