(eToro Blog) As economists had predicted, the ECB’s policy setting committee decided to keep its benchmark interest rates on hold at the current levels. Some analysts thought, and some market players had been hopeful, that recent changes to the make-up of the Executive Board which seated two new members from France and Germany, might push through a change in policy.
At the press conference which followed, ECB President Mario Draghi said that the policy was left unchanged as the analysis of the data which supported the previous decisions was confirmed, though ongoing analysis of the data is warranted. The Bank expects inflation to remain above the 2% target for some time before retreating, and the underlying pace of monetary expansion continues to be moderate. Ongoing uncertainty continues to dampen economic activity within the Eurozone, despite tentative signs of some stabilization.
He also noted the high participation in the Bank’s most recent 3-year offering, and said that the Bank would continue to implement the measures announced previously which should provide additional economic support, but he reiterated that the “non-standard monetary policy measures are temporary in nature.”
Furthermore, he noted that economic outlook remains subject to substantial downside risks and an environment of high uncertainty.
Finally, Mr. Draghi called on the Eurozone’s various governments to “do their utmost to support fiscal sustainability” and urgently implement “bold and ambitious structural reforms” to “strengthen confidence, growth prospects and job creation.”
That the Eurozone is in a state of crisis is without doubt, and the ECB has been urged, again and again, by economists, analysts and markets alike to more aggressively address the problems by putting to use the tools at its disposal. The Eurozone banks have been equally uncertain of their future, choosing instead to park overnight funds with the central bank rather than lend among themselves. Repeatedly, the ECB has reported that overnight deposits have struck a new record high.
The economic data points bolster the need for more stimulus, from any source. Earlier today, Eurostat reported that Industrial Production for November fell; on an annualized basis, it dropped to -0.3% from a revised 1.0%, well below the consensus call for 0.3%. On a month-over-month seasonally adjusted basis industrial production fell to -0.1% from a downwardly revised -0.3%; analysts had expected -0.2%.
Ahead of the announcement, European markets were sharply higher on news that there was solid demand, and acceptable yields, at the Spanish debt auction as well as the 1-year Italian debt auction. The DAX is higher by 0.76%, the CAC-40 by 0.46% and the FTSE up 0.09%. The Euro-Dollar was earlier trading close to a session high at 1.2770, but has retreated to 1.2757, while sentiment among eToro traders remains steadfastly bearish.
Copyright 2012 eToro Blog
