ECB Leaves Policy Stance Unchanged, Downgrade Economic Outlook

ECB Leaves Policy Stance Unchanged, Downgrade Economic Outlook

The ECB left the main refinancing rate unchanged at the November meeting. President Draghi signaled that the 17-nation bloc’s economic outlook has weakened. Yet, policymakers appeared to have no intention to add further easing measures to contain the deterioration. One reason we believe is the unchanged inflation outlook. Meanwhile, the central bank viewed current interest rates as appropriate and 'accommodative' enough for the current situation, citing negative real rates as an evidence of this very easy stance.

On the economic developments, the ECB acknowledged that 'economic activity in the Euro area is expected to remain weak…most recent survey evidence for the economy as a whole, extending into the fourth quarter, does not signal improvements towards the end of the year'. The November statement appeared more dovish than the previous one. In October, policymakers expected 'gradual recovery thereafter' while in November, they only stated that 'the growth momentum is expected to remain weak' and 'uneven' global cycle would probably continue to 'dampen the pace of recovery', without any mention of a 'gradual recovery'. Concerning inflation, the ECB noted the 'risks to the outlook for price stability continue to be broadly balanced', suggesting 'price stability over the medium term'.