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FOREX: EURO Rebounds after ECB President Mario Draghi’s Comments

FOREX: EURO Rebounds after ECB President Mario Draghi’s Comments

Research, Research Team

The European Central Bank left its refinancing rate on hold at 0.25 percent at the end of its monetary policy meeting today. The deposit rate and the marginal lending rate were also unchanged at 0.00 and 0.75 percent correspondingly. The refinancing rate; also called the minimum bid rate, is the rate at which Europe’s Central Bank lends to commercial financial institutions such as banks to enhance short term liquidity

Inflation in the euro- zone area slipped to 0.7 percent last month, below the ECB’s target of slightly lower than 2 percent. Draghi attributed the fall in inflation to lower energy costs and expects inflation to remain low for an extended period as the recovery in the 18- nation euro area continues to be fragile. The ECB President emphasized that the Central bank would wait until next month to gauge the performance of the euro- zone economy and is willing to take significant steps with regards to monetary policy, if required.

The President was of the view that current monetary policy should be able to support domestic demand although risks remain to the downside and any uncertainty in the emerging economies could negatively impact the economic conditions in the euro- area. The euro slipped after the rate announcement, but rebounded as ECB President Mario Draghi allayed concerns of a deflationary threat, in a press conference, following the policy meeting.

At 3PM GMT, the EURO was trading at five session highs, above 1.3600 to the greenback, after settling at 1.3531on Wednesday and up more than half a percent for the day. Some traders had anticipated a rate cut in today’s meeting The next meeting of the governing council to decide on monetary policy issues is scheduled for the 6th of March.

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