ECB launches 'strategic review', leaves policy unchanged

Frankfurt

THE European Central Bank (ECB) left its policy unchanged on Thursday and launched a "strategic review" of its inflation goal and tools.

ECB President Christine Lagarde said monetary policy has to remain highly accommodative for a prolonged period of time to support underlying inflation pressures and headline inflation developments over the medium-term.

Speaking after a meeting of the ECB's Governing Council, she said: "The unfolding monetary policy measures are underpinning favourable financing conditions for all sectors of the economy."

She said easier borrowing conditions for firms and households are supporting consumer spending and business investment. This will sustain the euro area expansion, and the build-up of domestic price pressures.

She noted that while inflation developments remain subdued, there are some signs of a moderate increase in underlying inflation in line with expectations. "We will therefore closely monitor inflation developments and the impact of the unfolding monetary policy measures on the economy," Ms Lagarde said.

The ECB chief reiterated that the Governing Council stands ready to adjust all of its instruments, as appropriate, to ensure that inflation moves towards its aim in a sustained manner. "Incoming data since our last meeting are in line with our baseline scenario of ongoing but moderate growth of the euro area economy."

With Thursday's decision, the ECB's rate on bank overnight deposits, which is currently its primary interest rate tool, remains at a record low of -0.50 per cent.

The main refinancing rate, which determines the cost of credit in the economy, remained unchanged at 0.00 per cent while the rate on the marginal lending facility - the emergency overnight borrowing rate for banks - stayed at 0.25 per cent.

The governing council will continue to make net purchases under the asset purchase programme (APP) at a monthly pace of 20 billion euros (S$29 billion). And it expects it to run for as long as necessary and to end shortly before raising the key ECB interest rates.

Ms Lagarde, who is chairing her second press conference since taking over the post last year, said risks to the eurozone economy had become "less pronounced" in the wake of a US-China trade truce.

"One critical development since our last meeting in late December has been the conclusion of Phase One of the negotiations between US and China," she told reporters referring to the recent US-China trade deal.

"Risks related to geopolitical factors, rising protectionism and vulnerabilities in emerging markets remain tilted to the downside, but have become less pronounced as some of the uncertainty surrounding international trade is receding."

She also sees a "positive signal" in US-EU trade talks a day after President Donald Trump threatened fresh tariffs on car imports.

Ms Lagarde said she took "some comfort" from the upbeat tone of the most recent meeting between Mr Trump and European Commission head Ursula von der Leyen.

This "is to be taken as a positive signal," she added. REUTERS, AFP