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June 14, 2018MONETARY POLICY: EURO AREA At today’s meeting, the Governing Council of the European Central Bank(ECB) announced that the key ECB interest rates are unchanged with the interest rates on main refinancing operations, marginal lending facility and the deposit facility at 0.00%, 0.25% and -0.40% respectively. The rates are expected to remain at their present levels at least through the summer of 2019. Monthly asset purchases will run at the current pace of €30 billion per month until September 2018 before a reduction to €15 billion per month until December 2018 after which net purchases will end. The plan for interest rates and asset purchases will be subject to incoming data confirming the ECB's medium-term inflation outlook.
Euro area real GDP grew 0.4 per cent in Q1, following growth of 0.7 per cent in the previous quarter. The latest economic indicators are weaker, but remain consistent with ongoing broad-based economic growth. Compared to the high level of growth in 2017, real GDP growth is expected to moderate with the ECB projecting 2.1 per cent in 2018, 1.9 per cent in 2019 and 1.7 per cent in 2020. Currently, increased uncertainty, weaker trade demand, and some temporary and supply-side factors at both the domestic and global level are slowing growth. Private consumption is supported by rising household wealth and ongoing employment growth. Business investment is helped by favourable financing conditions, corporate profitability and solid demand.
Euro area inflation was 1.9 per cent in May, up from 1.2 per cent in April, reflecting higher energy, food and services price inflation. Given oil future prices, headline inflation is likely to remain at current levels through 2018. Underlying inflation remains generally muted but domestic cost pressures are strengthening amid high capacity utilization, tighter labour markets and rising wages. The ECB projections for HICP inflation has been revised up to reflect higher oil prices and is projecting 1.7 per cent in each year 2018, 2019 and 2020.
Sources:
European Central Bank
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