7 Dec

European Central Bank: December’s Monetary Policy Actions

WRITTEN BY David Ashworth

European Central Bank: December’s monetary policy actions

The ECB (European Central Bank) announced its monetary policy decision on December 3, 2015, outlining several decisions.

  • Among its key interest rates, the ECB pushed its deposit rate further into negative territory by reducing it by ten basis points to -0.3%. However, it did not change the main refinancing operations rate and the marginal lending facility rate, which remain at 0.05% and 0.3%, respectively.
  • It extended its APP (asset purchase program), under which it purchases bonds worth 60 billion euros every month, to March 2017 from September 2016. It stated that the program may be extended beyond the new deadline if so required.
  • It will reinvest principal payments from securities bought under the APP for as long as necessary.
  • Under the public sector purchase program, the ECB will now also include marketable debt issuances by regional and local Eurozone governments.
  • The central bank will continue main refinancing operations and three-month longer-term refinancing operations as fixed-rate tender procedures with full allotment at least until the end of the last reserve maintenance period of 2017. It will extend the operations beyond this period, if required.

European Central Bank: December’s Monetary Policy Actions

Why these actions?

The aim of these actions is to bring inflation in the Eurozone to the desired level. The European Central Bank aims for inflation in the area of just under 2%. However, the latest reading for October 2015 shows that inflation in the area rose by 0.1%. Energy prices withheld the rise of inflation and countered the rise in prices of fruits, vegetables, and restaurant meals.

In this series, we’ll see whether these policy actions might impact your allocation to Europe-focused mutual funds such as the Invesco European Growth Fund – Investor Class (EGINX), and the BlackRock EuroFund – Investor A (MDEFX), among others.

Financial and banking stocks such as ING Groep (ING), UniCredit (UNCFF), and Deutsche Bank (DB) fell after the policy announcement. We’ll see why in the next part of this series.

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