During the European Central Bank (ECB) meeting on December 3, the Governing Council decided to lower the deposit rate to -0.30%, keeping the key interest rate at 0.05%. This concerns interest rates.
Mario Draghi’s Speech
Later, during the speech by the head of the ECB, Mario Draghi, it was announced that the quantitative easing (QE) program would be expanded. Specifically, the program’s duration was extended from September 2016 to March 2017, and debt obligations of regional governments in the eurozone were included in the assets that the ECB will purchase. The volume of regional bond purchases is still difficult to determine, said Draghi. Bonds purchased under the QE program will remain on the ECB’s balance sheet after March 2017. According to the regulator, these decisions will help restore the eurozone economy.
Among the important growth issues of the currency union, Draghi mentioned unfavorable prospects for the growth of emerging economies. However, the low level of oil prices will continue to support household spending, and government spending will show growth in some areas of the eurozone.
Amid Mario Draghi’s statements, the EUR/USD exchange rate rose to 1.088. Market reaction is justified because many analysts expected the deposit rate to be lowered to -0.4%, not -0.3% as decided by the ECB, and the volume of the asset purchase program (QE) to increase to 75 billion euros per month from the current 60 billion euros per month, according to experts from ForTrader magazine.
Draghi explained the ECB’s actions. The measures taken by the regulator are effective, and therefore their strengthening was continued. Draghi considers the decision on the deposit rate quite appropriate. The overall ECB decision following the December 3 meeting was not unanimous but was adopted by a majority. The regulator’s actions will help achieve the set goals, says Draghi.
ECB Forecasts
- 2015: 1.5% compared to 1.4% in September;
- 2016: 1.7% compared to 1.7% in September;
- 2017: 1.9% compared to 1.8% in September.
- 2015: 0.1% compared to 0.1% in September;
- 2016: 1.0% compared to 1.1% in September;
- 2017: 1.6% compared to 1.7% in September.
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About the EUR/USD Rate
- ECB Meeting on December 3: Deposit Rate Reduced to -0.3%
- Speech by Yellen: Chair of the Fed Strengthened USD and Belief in Interest Rate Hike in December
- Nonfarm Payrolls on December 4: Can Anything Stop the Dollar’s Rise?
- Is It Worth Waiting for the EUR/USD Parity?
FAQ
What caused the EUR/USD to rise after the ECB meeting?
The EUR/USD rose due to the ECB’s decision to lower the deposit rate to -0.30% and expand its quantitative easing program, which surprised market expectations.
How did the ECB’s decision affect the eurozone economy?
The ECB’s decision aims to stimulate the eurozone economy by supporting household spending and increasing government spending in certain areas of the region.
What were the market expectations before the ECB meeting?
Before the meeting, many analysts expected the deposit rate to be cut to -0.4% and the QE program to increase to 75 billion euros per month, but the ECB made less aggressive moves than anticipated.
