Main refinancing rate remains unchanged at 0.00% by the ECB in its first policy meeting in 2020

The European Central Bank (ECB) decided in favor of keeping its monetary policy unchanged in its meeting on Thursday. Following the announcement of no change in the main refinancing rate, the bank also declared the start of a strategic review directed at inflation goals and relevant tools.

Thursday’s meeting also expressed the ECB’s plans of keeping rates as low as possible that may even see a further rate cut if the policymakers see a need in the upcoming months. As per the sources, the bank can also be expected to buy €20 billion worth of bonds per month until the Eurozone hits its inflation target that the ECB has set at just under 2%.

ECB Didn’t Hint At A Stricter Monetary Policy In The Upcoming Months

The ECB had released the same statement last month that did not hint at a prospect of a stricter monetary policy unless the aforementioned inflation target wasn’t hit. The unchanged statement, as per the analysts, suggests that the Eurozone has not yet reached the required level of stability in its economic data.  

Specifics of the ECB’s strategic review are yet to be announced. So far, however, it is known that the review is likely to last for a few months and will cover crucial topics like digital money, inflation target, and the counterstrategies against climate change. As per the ECB’s president, Christine Lagarde, it is in the best interest of the economy to have the review completed before the end of 2020.

According to Thursday’s decision, bank overnight deposits will continue to see a -0.50% rate that marks a record low. It is also the primary tool that the ECB uses for a broader insight into the interest rate. The main refinancing rate, on the other hand, remained unchanged in January’s meeting at 0.00%. The cost of credit is widely determined in the basis of the main refinancing rate in an economy. Lastly, the marginal lending facility was also left unchanged at 0.25% rate on Thursday.

Response In The Forex Market

Keeping up with the tradition, the forex market responded quite aggressively to the ECB’s decision on Thursday. Following the economic data, one of the most widely traded currency pairs, EUR/USD immediately lost traction and was seen dropping from around 1.1107 to a low of 1.1035. The entire decline of around 70 pips, however, wasn’t noted as sustainable as the currency pair regained a bit of it later in the day. At the time of writing, EUR/USD is exchanging hands around 1.1055.