Research Viewpoint

Viewpoint : The first ECB monetary policy meeting under the Lagarde presidency

Viewpoint The first ECB monetary policy meeting under the Lagarde presidency went exactly as expected. The strategy review will take place in 2020,…..

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Intesa Sanpaolo – Research Department


as also the recognition on the appropriateness of issuing digital currency. Forecast revisions were marginal. We do not expect decisions art the 23 January meeting, either.

– The Governing Council of the European Central Bank left monetary policy unchanged as expected.

No change to the deposit rate, which remained at -0.50%, nor to net purchases under the APP (20 billion per month), nor to forward guidance: as earlier, “the Governing Council expects the key ECB interest rates to remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics”.

– The staff forecasts were revised in the expected direction: a slight reduction of the growth forecast for 2020 was announced, to 1.1%, and a slight upward revision of inflation in 2020 to 1.1%. Inflation forecasts have been raised for 2021 and 2022, reaching 1.6% in 2022 (4Q 2022: 1.7%).

President Lagarde in any case clarified that the rise is not considered sufficient to meet the condition of a robust convergence towards the medium-term objective.

Therefore, there were no material consequences for the monetary policy outlook.

For what concerns risks to the forecast scenario, the ECB President said that the prospects on trade policies have improved compared to a few months ago.

– Lagarde also announced that the review of monetary policy strategy will begin in January and will be completed by the end of 2020.

The review will focus on the definition of price stability as well as on monetary policy instruments.

The work of the task force on digital currency issued by central banks will also be completed in 2020, with the intention of also defining the objectives of their introduction (reduction of the cost of payments, issue of inclusive, low-cost credit of other), in addition to technical aspects.

– For what concerns the outcome of the TLTRO III auction, the ECB would have preferred demand to in exceed the approximately 97.7 billion recorded, which compare to 146.8 billion in redemptions of previous programmes, although demand may have been negatively affected by the end of the year.

– Today’s meeting has not changed our assessment of the outlook. We are certain the ECB will keep policy rates unchanged as also the pace of purchases under the APP, and that this will also be the case at the next meeting on 23 January 2020.

We also consider it very likely that no further expansionary measure will be put in place in the course of 2020.


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