Monetary U-turn

At its monetary policy meeting on March 7, the Governing Council of the European Central Bank (ECB) announced measures intended to sustain easy financing conditions and to maintain interest rates at rock-bottom levels, beyond what was previously anticipated. This communication by the central bank comes at a time when risks are pointing towards a challenging year for the European economy.

Along with the termination of the ECB’s quantitative easing programme towards the end of 2018, which contributed to a monetary injection of €2.6 trillion over the last four years, the ECB had guided towards the possibility of a first rate hike in the euro area occurring after summer of 2019. These were the first signs that the ECB is slowly shifting towards a normalising monetary regime as the European economic recovery was under way.

However, as the outlook for the European economy started to worsen and the weakening price pressures are likely to dampen inflation once again, the ECB reacted by communicating a renewed commitment of monetary support. The ECB has extended its forward guidance to maintain its key interest rates unchanged “at their present le­vels at least through the end of 2019”.