ECB Monthly Report Is Moderately Bullish
As is traditional the European Central Bank (ECB) has published it’s monthly report exactly one week after the Governing Council meeting. The most recent meeting last Thursday saw a 10bps cut to both the key Refinance Rate and the Overnight Deposit rate to leave these at 0.15% and -0.10% respectively. The ECB also took the opportunity to fund a Targeted Long Term Refinance Operation (TLTRO) to the tune of €400Bn, which is directly aimed at increasing bank lending to both consumers and business enterprises.
The key tenet of this months report is the Bank’s reaffirmation of their commitment to using the unconventional policy measures at their disposal should the situation warrant such action, in this it states that the entire Governing Council remain unanimous. This statement implies that quantitative easing remains firmly on the table as an option that the ECB is prepared to utilize should the need arise. When taken in context of the ECB’s behavior under it’s current President, Mario Draghi, it is more likely a play to gain mileage out of issuing the credible threat of large scale asset purchasing than it is a tip off to the imminent introduction of such a policy.
The monthly report also notes that the Governing Council is taking the current lack of price growth activity within the Eurozone in it’s stride. It cited both mild and broad threats to inflation on both the upside and the downside. This reads as a prediction that no matter which direction the inflation number goes, it is currently at 0.5%, any likely moves will be moderate in nature. Whereas this statement rules out imminent deflation in the eyes of the ECB, it does directly not address the issue of the damage likely being caused by persistent low inflation.
Overall the ECB, in it’s monthly report, is noting a pick up in Eurozone growth, but it does go on to admit that high unemployment levels remain a concern.
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