ECB leaves rates unchanged as Christine Lagarde presides her first policy meeting

ECB leaves rates unchanged as Christine Lagarde presides her first policy meeting
Written by:
Michael Harris
12th December 2019
Updated: 11th March 2020
  • The European Central Bank (ECB) keeps rates unchanged in its policy meeting on Thursday.
  • Christine Lagarde presides her first ECB policy meeting.
  • ECB's main deposit rate is at a record low of -0.5%.
  • Response in the forex and equity markets wasn't too aggressive.
  • Christine Lagarde announced a broad ECB policy review to be completed by the end of 2020.

In a policy meeting on Thursday, the European Central Bank (ECB) announced that it has decided in favor of keeping rates unchanged. The meeting held in Frankfurt earlier today was the first one presided by Christine Lagarde.

ECB’s Main Deposit Rate Is At A Record Low Of -0.5%

Driven by the votes of the Governing Council, the ECB held the marginal lending facility at 0.25% while the main deposit rate remained unchanged at -0.5%, which matched the analysts’ forecast and marked a record low for the ECB.

The ECB further added that as long as the inflation outlook doesn’t align itself with the target of close to but below 0.2%, the rates can be expected to remain unchanged or further cut may also be introduced in the future meetings, depending on the economic circumstances.

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To further reinforce the policy, the ECB expressed plans of continuing net asset purchases unless the conditions direct otherwise. The strategy was introduced last month at a monthly rate of €20 billion.

Response In The Forex And Equity Markets Wasn’t Too Prominent

Following the ECB’s announcement, EUR/USD was seen trading sideways around 1.1132. Equity markets, on the other hand, printed slight gains in the beginning but turned red later on. According to the ECB’s current estimate, the euro area is expected to record 1.2% growth in annual real GDP in 2019, 1.1% in 2020, and the subsequent years noting a growth of 1.4%. In its September projection, the ECB had anticipated a 1.1% growth in 2019 and 1% for 2020.

In her speech, President Christine Lagarde highlighted that the slowdown in the euro area’s economic growth is starting to fade away. The current data, however, still points at weak growth dynamics and inflation pressures which support the lower rates policy for now. The inflation estimate for 2020 was increased by 0.1% in Thursday’s meeting while expected inflation in 2021 was capped at 1.4%. In fiscal 2022, the bank suggested, inflation can go as high as 1.6%.

Mario Draghi, who held the office before Lagarde, had initiated quantitative easing (second round) in September in an attempt to fuel the depressed eurozone economy. Draghi’s stance had met with opposition by the Governing Council.  In her speech on Thursday, Lagarde also announced a broad ECB policy review. The wide-scale review was last performed in 2003. The review is expected to complete by the end of the next year with the civil society representatives, the academic community, and Members of the European Parliament having a voice in it.  

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