EU-28 and EA-19 HCPI
Inflation returned to the EU in May 2016, following two periods of deflation. EU inflation finished the year at 1.1% for the EU 28, and 1.2% for the EA19.
With existing interest rates at record lows, and with significant assets purchasing already in the system, Europe’s monetary policy strategy remains a cause for concern.
In March 2016 the ECB agreed that the interest rate on its main refinancing operations (MRO) – the open market operation that provides weekly liquidity into the Eurosystem – would be decreased by 5 basis points to 0.00% – with rates on the marginal lending facility falling to 0.25%, and to -0.40% on the deposit facility – with effect from 16 March 2016.
In addition, the ECB is set to increase QE (formally called APP – asset purchase programme) in the light of the weakening outlook for the global economy, and uncertainty concerning the possibility of the UK’s exit from the EU (‘Brexit’). Under its APP, combined monthly purchases of €80 billion assets will start in April 2016. This will be acccompanied by the launch of a new series of four targeted longer-term refinancing operations, starting in June 2016.
In December 2016 the ECB decided to continue its APP at a monthly rate of €80 billion until the end of March 2017, and from April 2017 this would be reduced to €60 billion until at least December 2017, assuming the inflation rate remained within it target range.
- Marginal lending facility in order to obtain overnight liquidity from the central bank, against the presentation of sufficient eligible assets
- Deposit facility in order to make overnight deposits with the central bank.