ECB Governing Council Statement and Press Conference

April 21, 2016

Fresh action had not been expected at the April policy meeting following the plethora of actions unveiled at the March 10 meeting.  As predicted, the refinancing, deposit and marginal lending rates were kept at zero, -0.40% and +025%, and the emphasis of today’s message was on full implementation of steps announced in March.  The statement takes credit for a recent improvement in “broad financing conditions,” projects continuing economic recovery but with headwinds and downwardly skewed risks, warns that inflation could dip below zero in the short run but then pick up and recover further during the next two years through 2018.  Economic and monetary analysis each “confirmed the need to preserve an appropriate degree of monetary accommodation in order to secure a return of inflation rates towards levels that are below, but close to, 2% without undue delay.”  If needed, the door is left open to even more stimulus to secure the price stability mandate:  “If warranted to achieve its objective, [the ECB] will act by using all the instruments available within its mandate. In the current context, it is crucial to ensure that the very low inflation environment does not become entrenched in second-round effects on wage and price setting.”  Quantitative easing was expanded in March and interest rates were cut then.  The first operation in a new series of targeted longer-term refinancing operations (TLTRO II) will occur in June.

President Mario Draghi’s press conference defended the ECB’s stance, revealed that no discussion has occurred about an infusion of “helicopter money” but also criticized the tone of some of the central bank’s critics with a warning that the spreading of doubt on the unqualified independence of the ECB could undermine the transmission of monetary stimulus.  He also reiterated that complementary fiscal support and structural reform have been insufficient, thus leaving monetary policy to shoulder an unreasonably large share of the burden to restore price stability and sufficient aggregate demand to the eurozone economy.

The next monetary policy meeting on June 2 will be accompanied by updated macroeconomic forecasts.

Copyright 2016, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



Comments are closed.