Home Central Banks Economic Growth Concerns Weigh on ECB and BoJ

Economic Growth Concerns Weigh on ECB and BoJ

Stockholm (Ekonamik) – At their first monetary policy meetings of 2019, both the ECB and the BoJ left their main policy rates unchanged. Growth concerns stemming from global uncertainty were foremost on the mind of European and Japanese central bankers.

The ECB’s interest rate on the main refinancing operations (MRO) and the interest rates on the marginal lending facility and the deposit facility were kept unchanged at 0%, 0.25% and -0.40% respectively. The ECB also confirmed in its press release that it “intends to continue reinvesting, in full, the principal payments from maturing securities purchased under the asset purchase programme (…) for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation.”

The BoJ announced it would continue to apply a -0.1% interest rate on the current accounts of financial institutions. It will also continue to purchase of Japanese Government Bonds (JGBs) in order to keep ten-year interest rates at around 0%. Its purchase of ETFs and Japanese real estate investment trusts (J-REITs) will grow by 6 trillion yen and about 90 billion yen per year, respectively. It will also hold its position in CP and corporate bonds to JPY 2.2 trillion and about JPY 3.2 trillion outstanding, respectively.

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The minutes of the ECB meeting showed that it acknowledged market concerns about decreasing growth and inflation rates for 2019 and that these were reflected in its own forecasts, which were revised downwards in December.

“The near-term growth momentum is likely to be weaker than previously anticipated. (…) On the basis of current futures prices for oil, headline inflation is likely to decline further over the coming months,” said ECB President Mario Draghi at the press conference following the ECB Governing Council meeting. “There was also quite, I would say, unanimity about assessing the likelihood of a recession as being low,” Mr Draghi clarified.

The minutes of the BoJ meeting show two central bankers disagreed with the rates decision. “Mr. Y. Harada dissented, considering that allowing the long-term yields to move upward and downward to some extent was too ambiguous (…). Mr. G. Kataoka dissented, considering that, with heightening uncertainties regarding developments in economic activity and prices going forward, it was desirable to strengthen monetary easing so that yields on JGBs with maturities of 10 years and longer would broadly be lowered further, according to the BoJ press release.

Picture © Angela Morant/ European Central Bank 2019

Filipe Wallin Albuquerque
Filipe Wallin Albuquerque
Filipe is an economist with 8 years of experience in macroeconomic and financial analysis for the Economist Intelligence Unit, the UN World Institute for Development Economic Research, the Stockholm School of Economics and the School of Oriental and African Studies. Filipe holds a MSc in European Political Economy from the LSE and a MSc in Economics from the University of London, where he currently is a PhD candidate.

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