ECB holds rates at record low at Christine Lagarde’s first meeting
The European Central Bank has kept its policy rates unchanged and stuck to its bond-buying programme at the first monetary policymaking meeting under its new president Christine Lagarde.
Economists had expected the ECB to leave policy unchanged while it assesses the impact of its September cut in interest rates to a record low of minus 0.5 per cent and the recent restart of its programme of bond purchases at a pace of €20bn per month.
The ECB repeated its main message from its last two monetary policy meetings, saying that rates would not rise “until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2 per cent within its projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics”.
The debut decision under Ms Lagarde’s presidency mirrors the unchanged policy rates announced on Wednesday by the US Federal Reserve.
The decisions indicate that after loosening monetary policy in recent months in a bid to stimulate the economy, major central banks are now pausing while they assess which way global growth is heading.
Ms Lagarde will later on Thursday give her first press conference since replacing Mario Draghi at the start of November, and investors are set to scrutinise her responses for any signs of a shift in policy.
Andrew Kenningham at Capital Economics said: “Ms Lagarde will undoubtedly reiterate that the ECB remains committed to providing more policy stimulus, if required, to achieve its mandate. But that would not shed any light on how much she would push for further policy easing, and in what circumstances.”
Lacking central banking experience or training as an economist, Ms Lagarde is expected to focus on communicating ECB policy better and building consensus on its governing council, which was deeply divided in Mr Draghi’s final months. She has resisted being labelled as a hawk or a dove, saying she preferred to be considered an owl — “a very wise animal”.
Even after years of negative interest rates and more than €2.6tn of ECB bond purchases, European economic growth remains sluggish and inflation is well below its objective of below, but close to, 2 per cent. Furthermore, doubts are growing about whether the central bank can loosen monetary policy further — or if it is running out of ammunition.
The ECB will also later on Thursday update its forecasts for growth and inflation and provide its projections for 2022 for the first time.
There have been signs recently that the eurozone economy is stabilising as risks of a full-blown trade war or deeply disruptive Brexit recede.
If the central bank predicts inflation of 1.7 per cent in 2022, as many economists expect, that would signal that it believes the stimulus measures launched in September will succeed in bringing inflation in line with its objective. That may mean it does not expect to loosen policy further in future.