Yesterday, the ECB kept its rates unchanged on marginal lending at 0.25%, main refinancing operations at 0% and deposit facilities at -0.4%. The ECB’s asset purchase program will continue at EUR 80 billion. Moreover, the central bank announced its corporate sector purchase program that will start in June. The asset buying will include Eurozone domiciled non-credit institutions issued euro denominated debt instruments. The central bank will purchase debt instruments having maturity of between six months to 30 years and having a minimum credit rating of BBB-.
ECB President Draghi addressed worries during the meeting regarding the central bank’s willingness to further loosen policy, effect of negative rates.
The European Central Bank is upbeat that the stimulus measures introduced last month are slowly aiding in spurring loan creation, bolstering credit system and underpinning economy growth enough to speed up inflation to reach its target rate in the medium term. However, the central bank stressed that there is a requirement for a mixture of policies to uplift growth. Especially, it highlighted that structural reforms and growth-induced fiscal expenditures should be introduced along with accommodative monetary policy.
Euro area economy has not been growing impressively for quite some time; however, the growth is showing some indication of rebounding momentum in H1 2016. Till now it seems that the economy is growing at a proper pace to meet the projection of 1.4% in 2016, growing additionally to 1.7% as the stimulus measures announced recently finally begin impacting and start boosting economic activity, according to TD Economics. But the UK referendum is the largest threat to the outlook for the EU, noted TD Economics.
Even through indications are for the growth to be strengthening, inflationary pressures remain weak. A greater extent of underlying slack seen in several member nations is expected to be responsible for depressed price pressures in spite of growing commodity prices, added TD Economics. According to ECB, inflation is expected to remain lower than 2% target rate in the medium-term.
