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ECB keeps key interest rates unchanged, launches strategy review

(Xinhua)    14:04, January 24, 2020

European Central Bank (ECB) President Christine Lagarde (C) speaks during a press conference at the ECB headquarters in Frankfurt, Germany, Jan. 23, 2020. The European Central Bank (ECB) on Thursday decided to leave key interest rates for the euro area unchanged and launched a review of its monetary policy strategy.(ECB/Handout via Xinhua)

FRANKFURT, Jan. 23 (Xinhua) -- The European Central Bank (ECB) on Thursday decided to leave key interest rates for the euro area unchanged and launched a review of its monetary policy strategy.

KEY INTEREST RATES UNCHANGED

The ECB Governing Council said in a statement that the eurozone base interest rate will remain at 0.00 percent, with the marginal lending rate and deposit rate remaining at 0.25 percent and minus 0.50 percent, respectively.

The ECB said it expects the key ECB interest rates to remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2 percent within its projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics.

It also confirmed that the net purchases under its asset purchase program will continue at a monthly pace of 20 billion euros (22.18 billion U.S. dollars).

ECB President Christine Lagarde said the risks surrounding the euro area growth outlook remain tilted to the downside, but have become less pronounced as some of the uncertainty surrounding international trade is receding.

Lagarde said the ECB team is looking carefully at the consequences of the signing of the Phase One trade deal between China and the United States to assess the net impact on the euro area.

As for euro area inflation, Lagarde said indicators of inflation expectations remain at low levels but they have recently either stabilized or ticked up slightly. Measures of underlying inflation have remained generally muted, although there are further indications of a moderate increase in line with previous expectations, she added.

The ECB president reiterated that the implementation of structural policies in euro area countries needs to be substantially stepped up, and said the ECB welcomed the Eurogroup's call in December for differentiated fiscal responses and its readiness to coordinate.

Two of the countries that have fiscal space are now seriously looking at how to expand more fiscally with their respective budgets, she said.

When the ECB cut interest rate in September 2019, a tiering system was introduced to mitigate the adverse effect of the negative interest rates on banks. Lagarde said Thursday that the tiering system has been operating well and proven to be effective.

Climate change is also a repeated theme on Thursday's press conference. In response to journalists' questions, Lagarde said there is ongoing work in various departments at the ECB that climate change is embedded in terms of risk assessment, models, forecasts. She also said that environment and sustainability will be very prominent in the ECB's policy strategy review.

"On climate change, I know that we will have a debate on whether it should be the role of central banks. I'm also aware of the danger of doing nothing," Lagarde said at the press conference.

STRATEGY REVIEW LAUNCHED

In a separate statement on Thursday, the ECB officially launched the review of its monetary policy strategy.

The review will include quantitative formulation of price stability, monetary policy toolkit, economic and monetary analyses and communication practices, the central bank said.

Other considerations such as financial stability, employment and environmental sustainability will also be part of the review.

The process is expected to be concluded by the end of 2020, according to the statement. The ECB reiterated that the process will be guided by the principles of thorough analysis and open minds, and will engage with all stakeholders.

The ECB's current monetary policy strategy was adopted in 1998 and some of its elements were clarified in 2003.


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