ECB Leaves Policy Unchanged – June Statement Sticks

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The European Central Bank held its monetary policy meeting last week on Thursday. As widely expected, the central bank did not make any changes to its monetary policy, leaving interest rates and QE purchases unchanged.

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The base deposit rate was left untouched at -0.40%, while the central bank maintained its bond purchases at 30 billion Euro.

The decision was widely expected following June’s revision to the monetary policy, and economists forecasted no change ahead of the summer break. At the previous monetary policy meeting in June, the ECB announced that it would cut its bond purchases by half starting from September, to 15 billion Euro.

The reduced size of bond purchases will also be closed by the end of December this year, 2018.

In its monetary policy statement, the central bank said that “the Governing Council expects key ECB interest rates to remain at their present levels at least through the summer of 2019.”

The statement was unchanged from June’s monetary policy statement. Back then, the central bank had squashed expectations of an earlier interest rate hike. At the July meeting, the ECB added that “in any case for as long as necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term.”

The Euro was slightly changed after the release of the monetary policy statement. In the press conference held later, ECB president Mario Draghi gave a positive outlook regarding the Eurozone’s economy.

Draghi told reporters that while there were uncertainties related to global trade policies. the information available from the central bank from its previous monetary policy meeting suggested that growth in the Eurozone was proceeding as expected.

The monetary policy meeting and the press conference did not add anything new for the markets to go by.

While the ECB’s meeting was broadly as expected, the Euro currency weakened following the press conference. The Euro was seen giving back its gains as it failed to clear the technical resistance level at 1.1730.

The ECB’s meeting comes amid economic data from the Eurozone showing no major changes. However, consumer prices were seen rising 2.0% on the year in June, but core inflation rate eased 0.9%. The gain in consumer prices, which touched the 2.0% inflation target rate set by the ECB came on account of higher fuel prices.

The ECB’s meeting showed that policymakers were cautious especially with the ongoing trade tussle with the United States. However, there was some encouraging news as just ahead of the ECB’s meeting, the U.S. and the EU were seen negotiating a trade pact. The Trump administration avoided further escalating tensions as the POTUS met with Jean-Claude Junker, the president of the European Commission.

As part of the deal, preliminary reports suggested that the EU would be importing billions of Dollars worth of U.S. soybeans and LNG. In return, the U.S. promised not to impose a 25% tariff on European car imports.

Ahead of the summit, EU leaders were preparing retaliatory tariffs on U.S. imports. While the threat of escalation of trade wars looks to have subsided, for now, policymakers are likely to take a long and hard look at the ongoing landscape.

Various international agencies have also cautioned against protectionist policies which are expected to harm the global economic growth.

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