At its April meeting, the European Central Bank elected to leave the benchmark euro area refinancing rate unchanged at 0.25%, as expected.
The rate on the ECB’s marginal lending facility was unchanged at 0.75%, and the deposit facility rate was left at 0%.
At his monthly press conference following the decision, ECB President Mario Draghi failed to announce any additional unconventional stimulus measures.
He did say, however, that the ECB Governing Council was unanimous on deploying unconventional tools if needed, but also that it had not yet exhausted conventional measures.
One of the tools discussed at the April meeting, according to Draghi, was quantitative easing (QE).
“There was a discussion of QE,” he said. “It was not neglected over the course of what was actually a very rich and ample discussion.”
The euro is lower against the U.S. dollar, trading around $US1.3720.
Only three of the 57 economists polled by Bloomberg expected a rate cut at today’s meeting.
On Monday, Eurostat published its initial estimate of euro area-wide consumer price inflation in the month of March — up 0.5% from a year earlier, down from February’s 0.7% year-over-year change and below consensus estimates for a smaller deceleration to 0.6% year over year.
Draghi addressed the low reading, ascribing the drop to the timing of Easter, but admitting it was a “genuine surprise.” Last year, the holiday fell in March, so services prices — especially travel prices — were higher. This year, it is in April, so inflation may bounce back this month.
Moreover, he stressed that inflation expectations — a key measure for the ECB — remain firmly anchored in the medium term.
“The ECB could easily have justified doing a lot more already,” says Greg Fuzesi, an economist at JPMorgan Chase.
“That it has not done so, in our view, reflects the constraint it faces from a lack of tools it considers appropriate and impactful. Its hope is that the monetary policy transmission improves over time (especially with the AQR and stress tests) and that growth holds up, even as low inflation and a surprisingly strong currency are raising the pressure to act. Our forecast that the ECB stays on hold this week (and beyond) is therefore uncomfortable, and we note that the threshold for action remains very hard to gauge. Essentially, we are assuming that core inflation remains stable and that growth gradually picks up further and that this persuades the ECB to remain patient.”
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