The European Central Bank (ECB) meets in Frankfurt tomorrow [Thursday] to decide any changes to monetary policy.
While the bank’s president Mario Draghi said earlier this month “an ample degree of monetary stimulus remains necessary”, buoyant growth in the euro-zone is likely to bring nearer the “normalisation” of ECB policy. Germany’s central bank has called for a major move in this direction.
In this context, the ECB meeting will be closely watched as an ECB rate decision in an upward direction becomes more likely. ECB news is always topical, given the sheer size of the euro-zone economy, but on Thursday it will attract special scrutiny.
Until at least the end of September, the ECB is committed to a quantitative easing (QE) policy of using newly-created money, currently €30 billion a month, to buy financial assets in the market, thus pumping cash into the 19-nation single currency bloc.
In addition, in March 2016 European Central Bank rates were slashed. The main interest went to rate to zero, from 0.05 per cent, its marginal lending rate, which provides overnight credit to banks, went from 0.3 per cent to 0.25 per cent, and it deepened the negative interest rate paid on commercial banks’ overnight deposits at the ECB from minus 0.3 per cent to minus 0.4 per cent.
Unlike America’s Federal Reserve and the Bank of England, the ECB has yet to begin the process of tightening monetary policy, but a return to benign economic conditions suggests the lifespan of the current ultra-loose policy is well over the half-way mark. This is thought to be the view of those running the euro-zone’s largest economy, Germany, who have long been wary of QE and of reflationary monetary policy in general.
Speaking at the International Monetary Fund (IMF) meeting in Washington earlier this month, Mr Draghi said: “The euro area economy has been expanding robustly, with growth broad-based across countries and sectors. The economy grew by 2.8 per cent in year-on-year terms in the fourth quarter of last year, according to the latest estimate.”