The European Central Bank announced Thursday it was keeping its interest rates and coronavirus-stimulus program unchanged, despite a stronger euro putting pressure on the policymakers.
The euro, which is closely watched by the central bank, has risen over 5% against the the dollar since the start of July and was trading around $1.1846 just after the decision. A stronger currency makes imports cheaper, hitting euro zone exporters and tightening financial conditions for the wider economy.
A surprisingly low inflation reading in August, the lowest since 2001, also raised questions about whether the ECB will have to do more to revamp the euro economy.
The ECB decided to not take any major action for now, although investors will be watching the central bank head Christine Lagarde's upcoming press conference for any policy fine-tuning.
More action in December?
The interest rate on the ECB's main refinancing operations, marginal lending facility and deposit facility remain unchanged at 0.00%, 0.25% and -0.50%, respectively. While the bank's Pandemic Emergency Purchase Programme remains at a total of 1.35 trillion euros ($1.6 trillion).
"These purchases contribute to easing the overall monetary policy stance, thereby helping to offset the downward impact of the pandemic on the projected path of inflation," the ECB said in a statement.
In June, the ECB ramped up its coronavirus-stimulus program from 750 billion euros to 1.35 trillion euros, to last at least until June 2021. Analysts are expecting an increase in the total amount of the program before the end of the year.
"The ECB's Governing Council might be tempted to delay a decision until the final policy meeting of the year, for several reasons," Frederik Ducrozet, senior economist at Pictet Wealth Management, said via email.
"The outlook remains highly uncertain and global risks abound, but the signal-to-noise ratio remains low. Early signs of divergence have emerged among Executive Board members, suggesting more time will be needed to discuss the ECB's next move," he said.
Outlook
In June, the ECB forecast annual inflation to reach 0.3% at the end of 2020 — well below its target of almost 2%. It estimated that inflation would pick up to 0.8% in 2021 and 1.3% in 2022.
The central bank also forecast a contradiction in gross domestic product of 8.7% in 2020, followed by a rebound of 5.2% and 3.3% in 2021 and 2022, respectively.
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September 10, 2020 at 06:46PM
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European Central Bank keeps rates and stimulus program unchanged, despite stronger euro - CNBC
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