ECB Makes No Policy Changes this Month But Keeping Option Open for June

May 8, 2014

The European Central Bank retained a 0.25% refinancing rate, flanked by a zero deposit rate and a 0.75% marginal lending rate.  New staff forecasts due next month will play a pivotal role in determining if policy is eased then.  All options not prohibited by the central bank’s mandate are possible.  The forward guidance calls for interest rates to remain at present or lower levels for an extended period of time, and the statement released today reaffirms a a commitment to “maintain a high degree of monetary accommodation and act swiftly, if required, with further monetary easing.”  Only if staff forecasts appear to recommend otherwise does it seem likely that some kind of measure or series of stimulative actions will be taken next month.  The statement sticks to the view that medium-term price expectations are consistent with the bank’s target, but officials have indicated that the longer inflation is well below that target, the greater is the risk of a downdrift in price expectations as well.  The euro initially rose on today’s decision but then turned lower and is currently about a quarter of a cent below $1.3900.

Copyright 2014, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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