ECB Sees Rates Unchanged Until the End of 2019


The European Central Bank held its benchmark refinancing rate at 0 percent on March 7th and pushed out the timing of its first rate hike in nearly eight years to 2020 at the earliest. Also, the central bank announced a new series of quarterly TLTRO to be launched in September 2019, aiming to preserve favourable bank lending conditions and the smooth transmission of monetary policy; and reaffirmed it will keep reinvesting cash from maturing bonds for an extended period of time.

The ECB also cut its GDP growth forecast for 2019 to 1.1 percent from 1.7 percent previously estimated; and that for 2020 was lowered slightly to 1.6 percent from 1.7 percent. The 2021 forecast remains at 1.5 percent.
Meanwhile, policymakers now expect 2019 inflation rate at 1.2 percent (vs 1.8 percent previously estimated). Inflation forecasts for 2020 and 2021 were also revised slightly lower to 1.5 percent (vs 1.6 percent) and 1.6 percent respectively (vs 1.7 percent).

Excerpts from the ECB Introductory Statement:

First, we decided to keep the key ECB interest rates unchanged. We now expect them to remain at their present levels at least through the end of 2019, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term.

Second, we intend to continue reinvesting, in full, the principal payments from maturing securities purchased under the asset purchase programme for an extended period of time past the date when we start raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation.

Third, we decided to launch a new series of quarterly targeted longer-term refinancing operations (TLTRO-III), starting in September 2019 and ending in March 2021, each with a maturity of two years. These new operations will help to preserve favourable bank lending conditions and the smooth transmission of monetary policy. Under TLTRO-III, counterparties will be entitled to borrow up to 30% of the stock of eligible loans as at 28 February 2019 at a rate indexed to the interest rate on the main refinancing operations over the life of each operation. Like the outstanding TLTRO programme, TLTRO-III will feature built-in incentives for credit conditions to remain favourable. Further details on the precise terms of TLTRO-III will be communicated in due course.

Fourth, we will continue conducting our lending operations as fixed rate tender procedures with full allotment for as long as necessary, and at least until the end of the reserve maintenance period starting in March 2021.

Today’s monetary policy decisions were taken to ensure that inflation remains on a sustained path towards levels that are below, but close to, 2% over the medium term. While there are signs that some of the idiosyncratic domestic factors dampening growth are starting to fade, the weakening in economic data points to a sizeable moderation in the pace of the economic expansion that will extend into the current year. The persistence of uncertainties related to geopolitical factors, the threat of protectionism and vulnerabilities in emerging markets appears to be leaving marks on economic sentiment. Moreover, underlying inflation continues to be muted. The weaker economic momentum is slowing the adjustment of inflation towards our aim. At the same time, supportive financing conditions, favourable labour market dynamics and rising wage growth continue to underpin the euro area expansion and gradually rising inflation pressures. Today’s decisions will support the further build-up of domestic price pressures and headline inflation developments over the medium term. Significant monetary policy stimulus will continue to be provided by our forward guidance on the key ECB interest rates, reinforced by the reinvestments of the sizeable stock of acquired assets and the new series of TLTROs. 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.

ECB Sees Rates Unchanged Until the End of 2019


ECB | Joana Ferreira | joana.ferreira@tradingeconomics.com
3/7/2019 2:56:16 PM