ECB will delay interest rate hike if economic slowdown persists

EPA-EFE/MAURITZ ANTIN

The European Central Bank, ECB, building in Frankfurt am Main, Germany.

ECB will delay interest rate hike if economic slowdown persists


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The European Central Bank (ECB) could postpone a much-anticipated interest rate hike if the economy continues to decelerate, the incoming President of the Belgian Central Bank Pierre Wunsch said on December 17.

The ECB is unwinding its €2.6 trillion bond-buying programme but it will continue to reinvest income from maturing bonds in the sovereign debt market. The current plan should, however, see the end of the fiscal stimulus altogether by the end of 2019 and gradual interest rate rises.

In a press conference on December 17, Wunsch reiterated that the ECB’s decision is data-driven and slower growth could mean that the Eurozone remains in a prolonged period of ultra-low interest rates.

“If growth still slows, we will keep low-interest rates for a longer period,” Wunsch said.

Four days after the European Central Bank decided to end asset purchases, data shows a larger-than-anticipated slowdown in euro-area inflation. In November, core Inflation – food and energy excluded – stood at 1.9%, down from 2.2% in October.

Wunsch will succeed Jans Smets as the Governor of the Bank of Belgium by the end of January 2019 and becoming a member of the ECB’s Governing Council. His announcement appeared to be in line with Mario Draghi’s revised projection for 1.6% inflation next year. This means that the ECB must maintain an expansionary stand as all central banks have a 2% inflation target.

 

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