ECB Leaves Rates on Hold

The European Central Bank left its benchmark refinancing rate unchanged at a record low 0.05 percent on June 3rd as widely expected and confirmed its projections for the economic growth at 1.5 percent in 2015 and 1.9 percent in 2016.

Extract from Introductory statement to the press conference by Mario Draghi, President of the ECB,

Regarding non-standard monetary policy measures, the asset purchase programmes are proceeding well. As explained on previous occasions, our asset purchases of €60 billion per month are intended to run until the end of September 2016 and, in any case, until we see a sustained adjustment in the path of inflation that is consistent with our aim of achieving inflation rates below, but close to, 2% over the medium term. When carrying out its assessment, the Governing Council will follow its monetary policy strategy and concentrate on trends in inflation, looking through fluctuations in measured inflation in either direction if judged to be transient and to have no implication for the medium-term outlook for price stability.

Our monetary policy measures have contributed to a broad-based easing in financial conditions, a recovery in inflation expectations and more favourable borrowing conditions for firms and households. The effects of these measures are working their way through to the economy and are contributing to economic growth, a reduction in economic slack, and money and credit expansion. The full implementation of all our monetary policy measures will provide the necessary support to the euro area economy, lead to a sustained return of inflation rates towards levels below, but close to, 2% in the medium term, and underpin the firm anchoring of medium to long-term inflation expectations.

Let me now explain our assessment in greater detail, starting with the economic analysis. In the first quarter of 2015, real GDP in the euro area rose by 0.4%, quarter on quarter, after 0.3% in the last quarter of 2014. In recent quarters, domestic demand and, particularly, private consumption were the main drivers behind the ongoing recovery. The latest survey data to May remain consistent with a continuation of the modest growth trend in the second quarter. Looking ahead, we expect the economic recovery to broaden. Domestic demand should be further supported by our monetary policy measures and their favourable impact on financial conditions, as well as by the progress made with fiscal consolidation and structural reforms. Moreover, the low level of the price of oil should continue to support households’ real disposable income and corporate profitability and, therefore, private consumption and investment. Furthermore, demand for euro area exports should benefit from improvements in price competitiveness. However, economic growth in the euro area is likely to continue to be dampened by the necessary balance sheet adjustments in a number of sectors and the sluggish pace of implementation of structural reforms.

This assessment is also broadly reflected in the June 2015 Eurosystem staff macroeconomic projections for the euro area, which foresee annual real GDP increasing by 1.5% in 2015, 1.9% in 2016 and 2.0% in 2017. Compared with the March 2015 ECB staff macroeconomic projections, the projections for real GDP growth over the projection horizon remain virtually unchanged.

While remaining on the downside, the risks surrounding the economic outlook for the euro area have become more balanced on account of our monetary policy decisions and oil price and exchange rate developments.

ECB | Joana Taborda |
6/3/2015 2:04:57 PM