ECB Monthly Report: Monetary policy will remain accomodative

February's ECB Monthly Report includes information on the latest ECB meeting during which the Governing Council decided to leave interest rates unchanged at 0.75%.

The Council expects inflation to drop below 2% in the upcoming months. It explains that “medium to longer-term inflation expectations for the euro area remain firmly anchored in line with the Governing Council’s aim of maintaining inflation rates below, but close to, 2%”, thus the monetary policy stance will continue to be accomodative. The Eurozone HICP forecast was lowered to +1.8% in 2013 and to +1.8% in 2014.

As for GDP, the report states that in the fourth quarter of 2012 and in the first quarter of 2013 economic activity in the Eurozone still revealed weakness, but due to improved confidence in financial markets a stabilization in business and consumer confidence can already be seen and recovery should start in mid-2013. For this year, the ECB staff sees GDP flat, while for 2014 growing 1.1%

Regarding the early LTRO repayments (so far €140.6 billion of the €489.2 billion have been repaid) the Governing Council points out that they may help further reduce excess liquidity expectations.