The Eurozone has been under inflationary pressure in the past two quarters [Xinhua]
The European Central Bank (ECB) on Thursday has voted to keep rates steady and maintain the scale-down of its bond-buying quantitative easing stimulus program.
The decision comes just a day after the US Federal Reserve’s Chief Janet Yellen said the American economy was coming more in line with the Fed’s goals of full employment and inflation and that markets should expect some interest rate hikes in 2017.
But inflation has started to become a worry in the Eurozone as it speeds toward the ECB’s two per cent goal.
In Germany, for example, the inflation rate rose from 0.4 per cent in July to 1.7 per cent in December.
In the Eurozone as a whole, the inflation rate nearly doubled from 0.6 to 1.1 per cent.
“The Governing Council will continue to look through changes in HICP (Harmonised Consumer Price Index) inflation if judged to be transient and to have no implication for the medium-term outlook for price stability,” ECB President Mario Draghi said at a press conference in Frankfurt on Thursday.
The interest rate on the main refinancing operations of the Eurosystem was lowered by 5 basis points to 0.00 per cent last March.
The rate on the marginal lending facility remains at 0.25 per cent, and the deposit rate at minus 0.4 per cent.
This would mean that banks that hold money overnight at the central bank would have to pay for the service; it would, therefore, be in their benefit to encourage lending.
In December, the ECB extend the bond-purchasing stimulus program – originally slated to terminate in March 2017 – till December 2017. But in what was largely an unexpected move, the bank decided to “trim” the cost of its bond buying by 20 billion euros starting April 2017, bringing it down to 60 billion euros a month.
The BRICS Post with inputs from Agencies