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ECB Gives Unprecedented Forward Guidance

ByBenzinga
Published 07/05/2013, 10:17 AM
Updated 07/09/2023, 06:31 AM

The euro slipped lower on Friday after the European Central Bank's monthly policy meeting indicated that the bank would continue with low interest rates. The common currency traded at $1.2894 at 6:05 GMT on Friday morning.

Record Lows
The ECB announced that it would keep interest rates at record lows far into the future and even claimed to be prepared to cut the rates again if need be. The bank, which normally keeps its options open, has stepped outside its comfort zone by committing to policy for the future. In doing so, the central bank has alleviated concerns that it would follow in the US Federal Reserve's footsteps and begin to withdraw some of its support.

This marks the first occasion that the central bank has provided forward guidance on monetary policy and although the ECB was not specific about the economic indicators it would use to measure the success of the expansionary policy, markets responded positively.

According to The Wall Street Journal, the bank's decision to offer forward guidance has provided some damage control as an ongoing political crisis in Portugal has threatened to tear down much of the region's forward progress. After months of calm, Portugal has been under a lot of pressure as both the country's finance and foreign ministers resigned, which many were expecting to break up the nation's fragile coalition government.

Mario's Take
Moving forward, Bank President Mario Draghi said he is still expecting to see the region return to growth at the end of the year. He praised Portugal for the progress it has made since receiving a bailout and was able to soothe markets enough to recover some of the losses to Portugal's bond market.

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