The European Central Bank has kept its ultra-loose policy rates on hold and signalled that it expects them to stay there for many months as it undertakes its first strategic review for 16 years.
Christine Lagarde, who took over from Mario Draghi as ECB president in November, will outline the framework for the review of its monetary policy objectives and tools later on Thursday.
The central bank’s second strategic review in its 20-year history is set to trigger bruising debates on some of the most divisive issues in central banking, from the side-effects of negative rates to the financial risks of climate change.
The process starts at a time when central banks are grappling with doubts about whether their main tools have lost their effectiveness, as inflation remains stuck below their targets despite years of accommodative policy measures.
Ms Lagarde has been given some breathing space for the review after the eurozone economy showed signs of stabilising recently, albeit at a low level, as risks of a full-blown trade war or a deeply disruptive Brexit recede.
The brightening prospects for the eurozone, despite the fact that growth is expected to have slowed from 1.8 per cent in 2018 to 1.2 per cent in 2019, have prompted investors to shift from anticipating a rate cut this year to positioning themselves for rates to rise next year.
A key signal on the potential direction of ECB policy will be whether it shifts from saying the risks to its growth outlook are “tilted to the downside” to describing them as “neutral”.
One cloud over the ECB’s rate-setting meeting came from the German constitutional court, which is considering whether the central bank’s €2.6tn bond-buying programme is legal. The court announced on Thursday that it would give its ruling in the case on March 24.
The case stems from a complaint by a group of almost 2,000 people, led by German economists and law professors, who argue that the ECB’s so-called quantitative easing programme (QE) is illegal.
The German critics say QE breaches eurozone treaties that prevent the central bank from financing member states’ governments by buying their debt. While this was rejected by the European Court of Justice in December 2018, its ruling came back to the German court to interpret it under national law.
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January 23, 2020 at 07:50PM
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ECB keeps rates on hold ahead of strategic review - Financial Times
Business - Latest - Google News
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