Coming into today’s policy meeting at the European Central Bank (ECB) most analysts had expected that the Governing Council (GC) would sanction further policy accommodation. The consensus expectation looked for the ECB to reduce the interest rate on its deposit facility from -0.30 percent to -0.40 percent. While some analysts looked for the GC to increase the size of its quantitative easing program (QE), others thought that it would keep the QE program unchanged at €60 billion/month.
Given the macroeconomic backdrop, most analysts had looked for some further easing steps. Inflation in the Eurozone, whether measured by the overall rate or the core rate, is essentially non-existent at present (Figure 1). Real GDP is growing, but the 1.6 percent year-over-year growth rate that was registered in the fourth quarter is hardly robust. Surely, the GC had to do “something” at today’s meeting.