ECB Rate Decision

The European Central Bank's decision to either increase, decrease, or maintain interest rates. The key mechanism behind the monetary policy is the control of interest rates. The ECBs influence in interest rates is within first changing of the "overnight rate" through the purchase of sale of government bonds. Lowering income rates may potentially spur economic growth, however may also incite inflationary pressures. Increasing rates, on the other hand, slows inflation but can also stunt economic growth. The ECB makes a collective effort to be as clear as possible in its policy. Frequent speeches made by Bank Governors help clarify policy goals and the Bank adheres to a stated inflation target of 2%, altering rates accordingly in order to meet the goal. Due to this, rate decisions, in general, very well anticipated however remain highly important nevertheless. The ECBs rate decision greatly impacts the financial markets. The ECB interest rate is essentially the return investors acquire in possession of Euros. This causes changes in the rates to affect the exchange rate of Euros. Due to anticipation of rate changes, the actual decision does not tend to influence the market. If the ECB changes rates, a press conference will be held in which some reasoning for the decision will be provided. The aforementioned press conference will capture the attention of market participants as they will try to determine the possibility of further rate alterations. The language used within the press conference will generally hold important signals in regards to how the ECB feels about the economy and inflation.

Share on,