European Central Bank holds interest rates and stimulus program

Market - Himanshu Gill - Jan 20,2017

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european central bank holds interest rates and stimulus program

The European Central Bank (ECB) has kept its key interest rates at zero and stimulus programs unchanged for another month.

ECB President Mario Draghi said that the Eurozone’s economy has gained strength but it is still fragile. The decision was taken by the governing council of 25 members of the ECB, which includes 6 board members and 19 Eurozone central bank governors.

The decision also extended to keep a hold on the ECB’s bond-buying stimulus scheme that was extended last month due to worries related to economic growth. Policymakers earlier chose to extend the bank’s mass bond-buying from March to December for this year, although slowing the purchases from 80 billion to 60 billion euros ($85 billion to $64 billion) a month from April.

Amidst the rising uncertainties due to the economic consequences of Brexit referendum, the US election of Donald Trump and a series of elections coming up ahead for major Eurozone members, the ECB might have just pulled itself out of the spotlight for much of 2017.

However, due to a sudden jump in inflation, from 0.6 percent in November to 1.1 percent in December and reaching as high as 1.7 percent in Germany, critics of the bank are accusing it of having a loose monetary policy. Economists and politicians in Germany, where people are seeing their cash savings shrinking due to inflation, are already racketing for a rate rise.

Mr. Draghi said that inflation is still half of the bank’s target of 2 percent, adding that it is driven largely by rising oil prices. Though core inflation, which doesn’t include volatile fuel and food, has been stuck at 0.8-0.9 percent and wages are not growing as quickly as anticipated.

After the decision, the euro dropped to a new low of $1.06 and to 86.25 pence against the pence.