ritten by ActionForex.com | Feb 07 13 15:54 GMT As widely anticipated, the ECB left the main refinancing rate unchanged and announced no new stimulus program. The overall tone of the statement, similar to the previous month, remained dovish. The central bank has clearly noticed the strength of the euro but President Draghi reiterated the position that it is the effect on growth and inflation that will make them react.
The ECB noted that weakness in the economy remains with risks skewing to the downside. However, recovery would be seen later in 2013 "with domestic demand being supported by our accommodative monetary policy stance, the improvement in financial market confidence and reduced fragmentation, and export growth benefiting from a strengthening of global demand". This view was the same as the one in January. Concerning inflation, the ECB continues to expect inflation to fall below 2% in "coming months". Also same as January’s statement, the central bank noted that inflationary pressure should remain contained and inflation expectations remain anchored. Risks to inflation are broadly balanced.
President Draghi acknowledged that repayment of banks as a sign of improvement in confidence in financial markets. Concerning the poor lending figure, he attributed it to weakness in credit demand and the "continued effect of credit risk considerations on the tightening of credit standards". Policymakers believed that the overall tone in the lending activates is not alarming.
The strength of the euro has caught the market great attention. Regarding this, Draghi said that "the appreciation is, in a sense, a sign of return of confidence in the euro". Moreover, he stressed that "the exchange rate is not a policy target, but it is important for growth and price stability and we certainly want to see whether the appreciation is sustained and will alter our risk assessment as far as price stability is concerned". Moreover, Draghi stated that the ECB would will "closely monitor" developments in the money market and "their potential impact on the stance of monetary policy, which will remain accommodative with the full allotment mode of liquidity provision".