European Central Bank holds rates, launches policy review

Marco Green
January 24, 2020

"If the central target is seen as a ceiling, we have less a chance of meeting it", ECB policymaker Francois Villeroy de Galhau said recently.

At the ECB's meeting, the 500th since the central bank was founded two decades ago, the governing council also chose to keep the deposit rate unchanged at -0.5pc and the pace of monthly bond-buying at €20bn, which was in line with economists' expectations. European Central Bank chief Christine Lagarde said at a press conference on Thursday that euro area real GDP grew by just 0.3% in the third quarter of 2019.

Lagarde will be listened to closely for indications on whether she will follow the ultra-easy monetary policies of her predecessor Mario Draghi amid doubts among some members of its rate-setting Governing Council about the efficacy of keeping the monetary taps wide open amid early signs of an improvement in the Eurozone economy.

She said she was aware of critical voices who anxious that climate protection would be "a distraction" from the ECB's mandate to ensure price stability, or who believed that climate policies should be left out of central banking altogether.

The ECB said in a statement that interest rates would remain "at their present or lower levels" until inflation starts climbing towards its 2% target.

The euro hovered around $1.1085, against the US dollar on Thursday after the ECB's announcement.

Changing the ECB's formulation of price stability - now defined as an annual inflation rate below, but close to, 2% over the medium term - will be the focal point of the review.

"Governments with fiscal space should be ready to act".

The strategic review, which is expected to be concluded by the end of the year, will examine the Bank's goals and how to achieve them.

Asked about a potential trade war between the USA and EU, Lagarde said she was "encouraged" by conversations between U.S. president Donald Trump and European Commission leader Ursula von der Leyen at Davos this week. It is the first such strategy review since 2003.

She said she would focus on listing to the concerns of ordinary citizens and communicating in way everyone can understand.

The European Central Bank should phase out climate-warming investments by preferring green bonds, Christine Lagarde said as she pitched to become the bank's first female president.

"It's a broad exercise", Lagarde said.

Other reports by Click Lancashire

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