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22 January 2021

ECB Interest Rates Remain Unchanged

The European Central Bank (ECB) has decided to keep its key interest rates unchanged at 0% for refinancing operations, 0.25% for marginal lending facilities, and -0.5% for its deposit facility, as key policy makers globally use rock bottom rates to help stimulate struggling economies.

The central bank, which provides monetary policy decisions for the European Union (EU), has continued to ramp up its already significant stimulus program in order to aid economic recovery in the region. It has also stated that it “stands ready” to act further if and when COVID-19 infection rates start to rise, causing further financial and economic distress.

The current stimulus has shown that it can be effective, with the bank confident that Euro area GDP growth will hit its 3.9% target in 2021, followed by a slightly slower and more ‘typical’ 2.1% in 2022, as set out during its meeting in December last year. It is difficult, however, to remain certain with regards to any kind of economic indicators in 2021 given the plethora of factors required to create a forecast. The speed of vaccination rollouts and the threat of further lockdowns across the region will both weigh heavily on the performance of the region in the coming year and beyond.

We expect policy makers to remain dovish for some time, ensuring interest rates are kept at rock bottom levels in order to help stimulate growth. In a recovery scenario, however, this could have implications for inflation. If policy makers do not remain flexible, keeping rates low, this could see inflation run above the typical 2% target, eroding consumer spending power, especially for those who remain left behind during the recovery, perhaps unemployed or without a house to live in.
ECB Interest Rates Remain Unchanged
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