ECB Governing Council Made No Further Policy Changes

December 5, 2013

New staff maroeconomic forecasts were released by the European Central Bank today following the final monetary policy meeting of 2013.  The mid-point of projected high-low ranges for GDP and CPI inflation are shown in the top row of the table below and compared to earlier forecasts issued at quarterly intervals.  Notably, sub-target inflation is foreseen in both 2014 and 2015.  While expected medium-term inflation continues to be anchored and consistent with the target of “below but close to 2.0%,” actual inflation in those years will likely be significantly lower.  Continuing very subdued inflation stems from “broad-based weakness of the economy and subdued monetary dynamics.”

  GDP 2013 GDP 2014 GDP 2015 CPI 2013 CPI 2014 CPI 2015
12/13 -0.4% +1.1% +1.5% +1.4% +1.1% +1.3%
09/13 -0.4% +1.0%   +1.5% +1.3%  
06/13 -0.6% +1.1%   +1.4% +1.6%  
03/13 -0.5% +1.0%   +1.65% +1.3%  
12/12 -0.6% +1.2%   +1.6% +1.4%  
09/12 +0.5%     +1.9%    
06/12 +1.0%     +1.6%    
03/12 +1.1%     +1.6%    
12/11 +1.3%     +1.5%    


President Draghi’s statement reiterates forward guidance that officials “continue to expect the key ECB interest rates to remain at present or lower levels for an extended period of time.”  At the meeting in November, the Council cut the refinancing rate and marginal lending rate by 25 basis points each to 0.25% and 0.75%, respectively, but left the deposit rate at zero.  Some members at that meeting had preferred to wait until today meeting before easing, but all felt now that the reduced interest rates are appropriate.  In Q&A, Draghi said the market reaction to the rate cuts in November had been appropriate, too, and demonstrated that forward guidance has achieved greater investor credibility.  But about possible future easing, he remained coy, refusing to be drawn into hypotheticals about what policy tools might be employed, under what conditions the ECB might act, or in shedding light on differences among the policymakers.  The general commitment remains that policymakers “are ready to consider all available instruments and are monitoring developments closely.”  At the same time, Draghi drew a distinction between more dire circumstances earlier this year and the better financial market conditions at present.

Price risks continue to be balanced, whereas growth risks surrounding the ECB’s latest forecasts are skewed to the downside.

Copyright 2013, Larry Greenberg.  All rights are reserved.  No secondary distribution without express permission.



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