One month after reloading the 'bazooka', ECB keeps monetary policy unchanged

Interest rates remained unchanged, with the rate applicable to the main refinancing operations and the rates applicable to the liquidity-providing facility and the deposit facility remaining at 0%, 0,25% and -0,5% , respectively.

The Governing Council of the European Central Bank (ECB) this Thursday left monetary policy unchanged, as expected by analysts, keeping interest rates at historic lows after the last meeting (in December) strengthened the size and prolonged the duration of the asset purchase program to combat economic and financial impacts.

"The Board of Governors has decided to reconfirm the position of very accommodative monetary policy," the ECB said in a statement.

Interest rates remained unchanged, with the rate applicable to the main refinancing operations and the rates applicable to the liquidity-providing facility and the deposit facility remaining at 0%, 0,25% and -0,5% , respectively.

On December 10th, the ECB strengthened the Pandemic Emergency Purchase Program (in English acronym, PEPP) by 500 billion euros, for a total of 1,85 billion euros, and extended the program term until March 2022 compared to the previous period of June 2021.

The eurozone central bank at that time also extended long-term financing lines for banking until June 2022. This is the third series of TLTROs, an unconventional monetary policy instrument, through which the institution provides loans of long-term banking, with the objective of encouraging the granting of credit to companies and consumers and increasing liquidity.

The ECB expects the eurozone economy to decline 7,3% in 2020 and to recover 3,9% this year. Christine Lagarde, President of the ECB, explained in December that the timing the end of the PEPP is designed for a time, the first quarter of 2022, when the economy should be recovering “very seriously and taking root”.

On 13 January, and in the context of new general confinements in several countries, Lagarde said that the ECB maintains projections growth of the eurozone economy, despite restrictive measures to combat the pandemic, provided that these measures are lifted by the end of March.

The president of the central bank explained that the projections are based on the perspective of restriction measures until the end of the first quarter, adding that if the restrictions were maintained in the second quarter, then it would be “a concern”.

This Thursday, the ECB reiterated that the Board of Governors remains ready to adjust all instruments, as appropriate, to ensure that inflation is heading towards the inflation target below but close to 2% in a sustained manner.

Attention now turns to Christine Lagarde's conference, at 13:30 pm.

[Updated at 12:50 am]

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