Interest Rate in Eurozone
Eurozone - Interest Rate
ECB maintains rates steady, confirms reduction of asset purchases
The European Central Bank (ECB) decided to maintain its policy rates at their current levels on 14 December, a decision widely expected by markets. The main refinancing rate was kept at 0.00%, and the marginal lending rate and deposit facility rate at 0.25% and minus 0.40%, respectively. The Bank also confirmed that it will reduce the pace of its monthly bond purchases under the Quantitative Easing program from EUR 60 billion to EUR 30 billion, starting in January 2018.
This decision to ease the pace of asset purchases, first announced at the last ECB meeting held on 26 October, is supported by macroeconomic data showing solid and broad-based growth momentum in the Eurozone. In quarter-on-quarter terms, the Euro economy grew 0.6% in Q3 2017, following 0.7% growth in Q2. Furthermore, the ECB upgraded its 2018 growth forecast by half a percentage point to 2.3%, which indicates that the need for growth-supporting monetary stimulus is waning.
However, according to ECB President Mario Draghi: “Domestic price pressures remain muted overall and have yet to show convincing signs of a sustained upward trend. An ample degree of monetary stimulus therefore remains necessary for underlying inflation pressures to continue to build up and support headline inflation developments over the medium term.” Although headline inflation rose to 1.5% in November, up 0.1 percentage point from October, core inflation edged down in the same month. Furthermore, the ECB downgraded its 2018 core inflation forecast to 1.1%, down from 1.3% in October. This evidences fragility in short-term inflation dynamics. Over the medium-term, however, the buoyant growth outlook should help drive underlying inflation sustainably higher.
As for the forward-looking policy outlook, the ECB has made it clear on numerous occasions that it plans to keep interest rates at their current level “for an extended period of time and well past the horizon of our net asset purchases”, which are scheduled to continue until at least September 2018. Therefore, our panelists overwhelmingly expect no change in interest rates in 2018. Some, like UniCredit’s Marco Valli, see the low core inflation trend as likely to delay a rate hike even further:
“We note that, despite clearly stronger GDP forecasts, the ECB’s own projections for core inflation have actually been revised further down throughout next year, de facto delaying the time of a clearer acceleration to 2019 and 2020. […] Overall, we continue to like our forecast that the ECB will terminate QE in December 2018 after a very quick tapering in 4Q18. We expect the first increase in the deposit rate in mid-2019 when the upward trend in core inflation should become more entrenched.”
Eurozone Interest Rate Forecast
Almost all of the analysts surveyed by FocusEconomics expect the ECB to keep the policy rate unchanged over the course of next year. The Consensus Forecast view is that the policy rate will end the year at 0.04%. For 2019, our panelists see the policy rate ending the year at 0.37%.
Eurozone - Interest Rate Data
|Policy Interest Rate (%)||0.75||0.25||0.05||0.05||0.0|
5 years of economic forecasts for more than 30 economic indicators.
Eurozone Interest Rate Chart
Source: European Central Bank.
|Exchange Rate||1.18||0.65 %||Dec 06|
|Stock Market||1,225||-0.52 %||Dec 06|
Get a sample report showing all the data and analysis covered in our Regional, Country and Commodities reports.
Start Your Free Trial
Start working with the reports used by the world’s major financial institutions, multinational enterprises & government agencies now. Click on the button below to get started.
December 18, 2017
Complete data released by Eurostat on 18 December confirmed that harmonized inflation was 1.5% in November, a notch above October’s 1.4% reading.
December 14, 2017
The European Central Bank (ECB) decided to maintain its policy rates at their current levels on 14 December, a decision widely expected by markets.
December 14, 2017
Leading data suggests that the Euro area’s economy ended the year on a positive note.
December 12, 2017
Activity in the industrial sector recovered in October, after recording the largest contraction since December 2016 in September.
December 7, 2017
The third estimate of GDP released by Eurostat confirmed that the economy continued to roar ahead in the third quarter.