At yesterday’s meeting of the ECB Governing Council the European monetary watchdogs decided not to make any changes to the monetary policy stance they have adopted. Despite the fact that the European economy is clearly picking up momentum, central bank governor Draghi continues to emphasize the need for a comprehensive monetary policy stimulus. For this reason the central bank will continue its bond-purchase programme at least until September 2018. The Governing Council already decided at its October meeting to halve the monthly volume of bond purchases as of the beginning of next year. Market speculation about a possible modification of the forward guidance has not been borne out. The monetary watchdogs initially want to end the net bond purchases before a possible interest rate hike is put on the agenda.
The ECB’s mounting optimism about the economy is reflected in the significant upside revision of its GDP projections. The most extensive adjustments were made here for full year 2018. The ECB staff projections now indicate GDP growth of 2.3% after the previous growth forecasts of only 1.8%. Less extensive adjustments were made to the inflation outlook. But it is worthy of special note that the central bank does not expect the inflation target it has set itself will be reached by the end of the time horizon in 2020, either. Among other things, this supports Draghi’s assessment according to which extensive support is still needed from monetary policy.
Yesterday’s meeting of the Governing Council did not hold any surprises in store. Despite the increasingly strong economic recovery the central bank is sticking to its accommodative monetary policy stance as inflation remains well short of its target. At the moment there is no sign of a tightening of monetary policy.