Reports

23 كانون ثاني 2020, 15:05
CNBC Elliot Smith
ECB holds rates as strategic review gets underway

The European Central Bank (ECB) on Thursday held interest rates steady as it launched its first strategic review since 2003, in a bid to establish whether its inflation target is still appropriate.

In its first rate decision of the year, the central bank’s Governing Council voted unanimously to keep the main deposit rate at a historic low of -0.5%, in line with market expectations. The marginal lending facility remained at 0.25%.

The strategic review launched Thursday was one of the first moves announced by Lagarde upon starting her tenure, with the central bank’s persistent low interest rate stance under fire from market participants who say it has become detrimental to economic growth.

The former head of the International Monetary Fund (IMF) and former French finance minister inherited an inflation rate of 1.0% in the euro zone upon taking the reins in November.

The strategic review will assess why inflation has remained stubbornly below target for many years, and whether the means of calculating the target needs to change, among other considerations.

“Markets will be paying close attention to the three ‘Ts’ when the scope of the review is announced,” Michael Brown, senior market analyst at Caxton, said in a note Wednesday.

“Firstly, target; will the ECB revise their inflation aim, perhaps targeting inflation symmetrically or defining the target more precisely? Secondly, transparency; the Governing Council are likely to discuss publishing voting records or adopting an interest rate forecast similar to the Fed’s dot plot. Thirdly, timing; policymakers are likely to want to conclude the review before year-end.”

In September last year, Lagarde’s predecessor Mario Draghi cut the ECB’s deposit rate by 10 basis points to its current level and launched a massive new quantitative easing (QE) program in a bid to stimulate the euro zone economy and push towards the central bank’s inflation target.

Net asset purchases as part of the QE program started in November at a monthly rate of 20 billion euros ($22.3 billion) and the ECB has indicated that this will continue to run “as long as necessary” to reinforce the accommodative policy stance.