No Change in ECB Policy Stance

July 26, 2018

The Governing Council’s fifth of eight scheduled meetings in 2018 ended as expected with no change in its policy stance. A released statement is upbeat about prospects for inflation rising back to its targeted pace but balances that confidence with the continuing assertion that it is conditioned upon a continuing stimulative policy —

The underlying strength of the economy confirms our confidence that the sustained convergence of inflation to our aim will continue in the period ahead and will be maintained even after a gradual winding-down of our net asset purchases. Nevertheless, significant monetary policy stimulus is still needed to support the further build-up of domestic price pressures and headline inflation developments over the medium term. This support will continue to be provided by the net asset purchases until the end of the year, by the sizeable stock of acquired assets and the associated reinvestments, and by our enhanced forward guidance on the key ECB interest rates. In any event, the Governing Council stands ready to adjust all of its instruments as appropriate to ensure that inflation continues to move towards the Governing Council’s inflation aim in a sustained manner.

The low interest rate levels will not be raised for about another year. After quantitative easing, i.e. bond purchases, are stopped at the start of 2019, maturing principal will continue to get reinvested for an extended period. In Q&A at his press conference, ECB President Draghi said that Wednesday’s U.S.-EU agreement on trade, sketchy as it is on detail, is better than if no positive accord had been announced, but he underscored that it’s premature to tell how the trade discussions will go or the ultimate impact of Wednesday’s news on growth. Indeed, his formal written statement released at the press conference still includes this language: “The risks surrounding the euro area growth outlook can still be assessed as broadly balanced. Uncertainties related to global factors, notably the threat of protectionism, remain prominent. Moreover, the risk of persistent heightened financial market volatility continues to warrant monitoring.”

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




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