European Central Bank (ECB) President Christine Lagarde addresses a news conference on the outcome of the meeting of the Governing Council in Frankfurt, Germany, January 23, 2020.
Ralph Orlowski | Reuters
The euro, which is closely watched by the central bank, has risen over 5% against the the dollar since the start of July and was trading around $1.1846 just after the decision. A stronger currency makes imports cheaper, hitting euro zone exporters and tightening financial conditions for the wider economy.
A surprisingly low inflation reading in August, the lowest since 2001, also raised questions about whether the ECB will have to do more to revamp the euro economy.
The ECB decided to not take any major action for now, although investors will be watching the central bank head Christine Lagarde’s upcoming press conference for any policy fine-tuning.
The interest rate on the ECB’s main refinancing operations, marginal lending facility and deposit facility remain unchanged at 0.00%, 0.25% and -0.50%, respectively. While the bank’s Pandemic Emergency Purchase Programme remains at a total of 1.35 trillion euros ($1.6 trillion).
“These purchases contribute to easing the overall monetary policy stance, thereby helping to offset the downward impact of the pandemic on the projected path of inflation,” the ECB said in a statement.
In June, the ECB forecast annual inflation to reach 0.3% at the end of 2020 — well below its target of almost 2%. It estimated that inflation would pick up to 0.8% in 2021 and 1.3% in 2022.
The central bank also forecast a contradiction in gross domestic product of 8.7% in 2020, followed by a rebound of 5.2% and 3.3% in 2021 and 2022, respectively.
This is a breaking news story and will be updated shortly.