DEC 2019: ECB Keeps Rates Unchanged

Daniel Fowler
December 14, 2019

The European Central Bank (ECB) on Thursday chose to hold interest rates steady, leaving its monetary policy unchanged following Christine Lagarde's first meeting as president.

Lagarde's comments come at a time when the People's Bank of China has reportedly started testing its digital currency.

Talking point: The global economy has been grappling with new challenges since the bank last reviewed its policy in 2003, including the impact of technology and climate change.

She told journalists that she would have "my own style" in communicating with the financial community and not to compare her too much to her predecessors. The ECB now expresses that as keeping annual inflation below, but close to 2 percent.

EUR/USD was stable after the rate decision.

Her remarks regarding fiscal policies could be considered encouraging as she said the euro area fiscal stance is expected to remain mildly expansionary in 2020, thus providing support to economic activity.

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The second most important event in the world of monetary policy with the potential for a significant impact on the global economy is today's European Central Bank meeting, the first one chaired by Christine Lagarde. The Governing Council expects the key European Central Bank interest rates to remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics. There's also been discussion of whether the European Central Bank should do more to support financing of projects aimed at fighting environmental pollution and climate change.

The economy in the eurozone is a mixed bag at the moment.

The bank trimmed its eurozone growth forecast for 2020 to 1.1 percent from 1.2 percent, but said it saw output strengthening to 1.4 percent in the following two years.

The eurozone base interest rate will remain at 0.00 percent, and the marginal lending rate and deposit rate at 0.25 percent and minus 0.50 percent, respectively. The rate is charged on excess cash left at the central bank overnight by commercial banks, so the negative rate is in effect a penalty that aims to push banks to lend the money to companies.

He also restarted a controversial bond-buying programme to the tune of 20 billion euros ($22 billion) a month, in the hopes of encouraging spending and investment.

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