By Laurie Laird
FRANKFURT (MaceNews) – The European Central Bank adopted a markedly easier policy stance at Thursday’s governing council meeting, just months after terminating its multi-billion dollar quantitative easing programme, following a dramatic downward revision to its growth forecast for 2019.
From September, the ECB will launch a new series of quarterly targeted longer-term refinancing operations, dubbed TLTRO-III, each with a maturity of two years. The programme will last until March of 2021, with the ECB promising to communicate “precise terms … in due course.”
The Bank also extended its forward guidance on interest rates, pledging to maintain interest rates at their present level through the end of this year, stretching the previously-stated timeline of keeping rates steady through the summer of 2019. The Bank held its main refinancing rate at 0.0% and its deposit facility rate at -0.4%.
After a spate of weak economic data, the ECB slashed its growth forecast for this year. Gross domestic product is predicted to grow by just 1.1% in 2019, down from a projection of 1.7% back in December. Inflation will hit an annual rate 1.2% this year, according to Bank economists, down from the 1.6% forecast at the end of 2019, and well below the ECB’s target of close to but less than an annual rate of 2%.
The downbeat outlook and accommodative policy measures mark a dramatic turnaround from the ECB’s stance in January, when President Mario Draghi expressed optimism that the economic slowdown that took hold last summer would prove short-lived.
The German economy recorded no growth in the fourth quarter, after contracting by 0.2% between July and September, while Italy fell into recession in the second half of last year.But the Draghi downplayed suggestions that the ECB has been slow to react to gathering economic clouds, stressing that euro zone monetary policy remains accommodative, even after the cessation of quantitative easing.
“We’re not behind the curve, for sure,” he told reporters following Thursday’s meeting. “When you’re in a dark room, you move with tiny steps. You don’t run.”
The cause of the darkness, in Draghi’s words, is the ongoing “period of continued weakness and pervasive uncertainty,” stemming from geopolitical factors such as protectionism and vulnerabilities in emerging markets.
The ECB’s “tiny steps” mark another formal change in policy from a major central bank, in addition to the Federal Reserve’s pivot to “patience” late last year, both reacting to the global economy’s signs of its slowdown in the latter half of 2018.