ECB holds interest rate steady

March 9, 2018

Mario Draghi, President of the European Central Bank (ECB) reported on the progress of the Euro area economy at a press conference held March 8, 2018.

ECB has decided to keep the key interest rates unchanged and has vowed to continue its asset purchasing program up to September 2018, or beyond, if necessary. ECB currently purchases net asset of  Euro 30 billion monthly.

Inflation for the Euro zone still remain subdue, but given the current expectation of the continued broad-based growth momentum within the euro area economy, inflation is expected to converge towards the ECB target of below, but close to, 2% over the medium term. As stated by Mario Draghi, “an ample degree of monetary stimulus remains necessary for underlying inflation pressures to continue to build up and support headline inflation developments over the medium term.

Real GDP for the Eurozone increased by 0.6% in the fourth quarter. This is a marginal decrease from the 0.7% increased reported in the third quarter.  According to Draghi, “Private consumption is supported by rising employment, which is also benefiting from past labour market reforms, and by growing household wealth. Business investment continues to strengthen on the back of very favourable financing conditions, rising corporate profitability and solid demand. Housing investment has improved further over recent quarters. In addition, the broad-based global expansion is providing impetus to euro area exports.

Loans to the private sector continues to progress. The Central Bank’s President stated that,the annual growth rate of loans to non-financial corporations strengthened to 3.4% in January 2018, after 3.1% in December 2017, while the annual growth rate of loans to households remained unchanged at 2.9%.”

Given the fundamental underlying the recent growth in the economy, ECB staff macroeconomic projections for the euro area is real GDP growth of 2.4% (2018), 1.9 (2019), and 1.7% (2020). However, downside risks to the Eurozone growth momentum relates primarily to global factors, including rising protectionism and developments in foreign exchange and other financial markets.



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