ECB Review

June 2, 2016

The Governing Council left key interest rates unchanged.  The last changes in March sliced the refinancing rate and marginal lending facility rate by 5 basis points each to zero and 0.25%, respectively, and the deposit rate by 10 basis points to negative 0.40%.

A released statement from ECB President Draghi placed the focus on implementing unconventional stimuli decisions made in March.  Corporate bond purchases will start next week, and the first in fresh series of longer-dated targeted refinancing operations will be done on June 22.

Forward guidance was reaffirmed.  The ECB interest rates will stay at current or lower levels for an extended period of time, that is well beyond the end of quantitative stimulus.

New macroeconomic forecasts were unveiled. For 2016, both growth and  inflation were revised upward, growth to 1.6% from 1.4% projected in March and CPI inflation to 0.2% from 0.1%.  The growth forecast for 2017 remains at 1.7%, the level projected in March and last December.  But in 2018, officials now expect GDP to rise 1.7%, down from predictions of 1.8% released in March and 1.9% back in December.  The latest inflation forecasts of 1.3% in 2017 and 1.6% in 2018% are same as those released in March.  Back in December, officials predicted inflation of 1.0% in 2017 and 1.9% in 2018.  Downside growth risks “continue to relate to developments in the global economy, to the upcoming British referendum and to other geopolitical risks.”

Overall, ” a cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis 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.”

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



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