ECB Policy Meeting Produces No Surprises or Significant Developments

September 13, 2018

The European Central Bank Governing Council left its policy settings unchanged.

  • The three key interest rates — a zero percent refinancing rate flanked by a -0.40% deposit rate and a 0.25% marginal lending facility rate — will not be increased through the summer of 2019.
  • Asset purchases will total EUR 30 billion this month and EUR 15 billion in each month of the fourth quarter. “We anticipate that, subject to incoming data confirming our medium-term inflation outlook, we will then end net purchases.” Maturing principal will be reinvested for a considerable time thereafter.

In a released statement from ECB President Draghi, the point was reaffirmed that both economic analysis and monetary analysis “confirmed that an ample degree of monetary accommodation is still necessary for the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term.”

“Underlying inflation is expected to pick up towards the end of the year and thereafter to increase gradually over the medium term, supported by our monetary policy measures, the continuing economic expansion and rising wage growth.” Although risks to the baseline growth scenario are still considered to be “broadly balanced,” the statement observes that “risks relating to rising protectionism, vulnerabilities in emerging markets and financial market volatility have gained more prominence recently.”

The most notable feature of this policy review is that it was accompanied by the release of updated macroeconomic forecasts. The GDP forecast for 2018 and 2019 were each bumped 0.1 percentage point lower compared to forecasts made three months ago as shown in the table below. Projected CPI inflation was not changed.

GDP, % 2018 2019 2020   CPI, % 2018 2019 2020
Sept 2.0 1.8 1.7 1.7 1.7 1.7
June 2.1 1.9 1.7 1.7 1.7 1.7
March 2.4 1.9 1.7 1.4 1.4 1.7
Dec ’17 2.3 1.9 1.7 1.4 1.5 1.7
Sept 1.8 1.7 1.2 1.5
June 1.8 1.7 1.3 1.6

Copyright 2018, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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