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ECB Leaves Rates at 0.25%

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This has been one of the most anticipated meetings of the European Central Bank (ECB) governing council so far this year. The Bank has been under significant pressure from member states as well as outside governments and financial bodies to urgently address the falling rate or price inflation within the Eurozone.

The benchmark Eurozone Refinance rate remains at the 0.25% level it has been at since November of last year. There was no real expectation of a move in this today.

The focus instead was on the potential for the ECB to embark on a program of quantitative easing. To date the Bank has been very reluctant to do this, primarily because of it’s wait and see stance on the Eurozone economy but also because legally and technically it is not a straightforward task in light of the 18 separate sovereign states bonds that would be involved.

There has not yet been an announcement on whether the Bank will in fact undertake such a program. Clarity on this will most likely be presented later in the day when the EBC President, Mario Draghi, gives the customary press conference that follows a meeting of the governing council.

In light of the inactivity in European consumer prices the ECB chief has already stated that ‘unconventional’ monetary policy measures would be taken should there be no significant pick up in inflation. The latest inflation readings have been mixed and this is what is leading to the uncertainty as to the ECB’s likely course of action.

Beyond direct quantitative easing the ECB also has the potential to reduce it’s over night deposit rate to below 0%. This would effectively result in banks being charged to keep their short term deposits there thus incentivizing them to undertake more rewarding market activity.

Regardless of the ECB’s action or inaction later, the Euro is likely to undergo sharp moves on the outcome of this key risk event.

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