09 May 2013

ECB: Monthly bulletin - May 2013

Based on its regular economic and monetary analyses, the Governing Council decided at its meeting on 2 May to lower the interest rate on the main refinancing operations of the Eurosystem by 25 basis points to 0.50% and the rate on the marginal lending facility by 50 basis points to 1.00%. The rate on the deposit facility will remain unchanged at 0.00%.

These decisions are consistent with low underlying price pressure over the medium term. Inflation expectations for the euro area continue   to be firmly anchored in line with the Governing Council’s aim of maintaining inflation rates below, but close to, 2% over the medium term. In keeping with this picture, monetary and loan dynamics remain subdued. At the same time, weak economic sentiment has extended into spring of this year.

The cut in interest rates should contribute to support prospects for a recovery later in the year. Against this overall background, the monetary policy stance will remain accommodative for as long as needed. In the period ahead, the Governing Council will monitor very closely all incoming information on economic and monetary developments and assess any impact on the outlook for price stability.

The Governing Council is closely monitoring money market conditions and their potential impact on the monetary policy stance and its transmission to the economy. In this context, the Governing Council decided at its meeting on 2 May to continue conducting the main refinancing operations (MROs) as fixed rate tender procedures with full allotment for as long as necessary, and at least until the end of the sixth maintenance period of 2014 on 8 July 2014. This procedure will also remain in use for the Eurosystem’s special-term refinancing operations with a maturity of one maintenance period, which will continue to be conducted for as long as needed, and at least until the end of the second quarter of 2014. The fixed rate in these special-term refinancing operations will be the same as the MRO rate prevailing at the time.

Furthermore, the Governing Council decided to conduct the three-month longer-term refinancing operations (LTROs) to be allotted until the end of the second quarter of 2014 as fixed rate tender procedures with full allotment. The rates in these three-month operations will be fixed at the average rate of the MROs over the life of the respective LTRO.

The Governing Council also decided to start consultations with other European institutions on initiatives to promote a functioning market for asset-backed securities collateralised by loans to non-financial corporations.

In order to bring debt ratios back on a downward path, euro area countries should not unravel their efforts to reduce government budget deficits and continue, where needed, to take legislative action or otherwise promptly implement structural reforms, in such a way as to mutually reinforce fiscal sustainability and economic growth potential. Such structural reforms should target improvements in competitiveness and adjustment capacities, as well as aim to increase sustainable growth and employment.

This issue of the Monthly Bulletin contains three articles. The first article reviews the performance of the Eurosystem staff macro-economic projections since their first publication in 2000. The second article looks at developments in external and domestic imbalances across euro area countries since the start of the 2008-09 global financial crises with a view to assessing the progress made in the adjustment process so far. The third article explains how, in a context of dysfunctional bank funding markets, large TARGET claims emerged as the ECB accommodated the liquidity needs of solvent banks and explains that TARGET balances are a manifestation of underlying tensions in the Economic and Monetary Union.

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