2016-11-22 14:17:25

At the time when the US Fed is likely to increase interest rate in the near future, the ECB continues to stick to the soft monetary policy.

A member of the governing Council of the ECB Ignazio Visco said that inflation in Eurozone continues to cause concern and the ECB will continue soft monetary policy until changes to the existing conditions.

The other senior representative of the ECB, Benoit Coeure, who is one of the six members of the ECB Board, said yesterday during the discussions at the round table in Germany that the European Central Bank would not reduce program of bond purchases in the amount of 1.7 trillion euros, as long inflation remains low.

In his yesterday’s speech ECB President, Mario Draghi has said that interest rates in the Eurozone will be raised when economic growth pace accelerates, and inflation increases. Low interest rate are the consequences of weak economic growth and low inflation in the world.

Core interest rate of the ECB (refinancing rate for the commercial banks) is at the level of -0.4%. The ECB has lowered the rate from 4.25% in 2008 to the record low current level.

In addition, the ECB continues QE program in Eurozone, monthly purchasing European assets in the amount of 80 billion euros (88 billion USD). Meanwhile, these measures did not bring improvements of the macro-economic statistics, or the rise in inflation. That is why it is possible that the ECB will announce changes in the program, which is due to complete in March 2017. Expectations of such decision put pressure on the Euro.

Currently inflation in Eurozone is at the level of 0.5%, far below the target level of 2%. Most economists expect that the Central Bank will prolong the program for at least six months. Next ECB meeting will be held on 8 December and it is expected that at this meeting the future of the bond purchase program will be decided.

Difference in the monetary policies of the ECB and the US Fed is the main driver of the pair EUR/USD. According to many economists, after the upward correct, the pair EUR/USD will continue to decline to the level of 1.0500.EUR/USD: inflation in Eurozone cause concern.  Fundamental analysis for 22/11/2016