ECB interest rate will remain at 0 percent for longer

ECB board members also looked at their expectations for economic growth and inflation in the eurozone this year and in the years to come. This showed that economic expansion in the euro area has slowed down significantly. The economic growth This year it will not be 1,7%, but 1,1%. In 2020, growth will probably also be lower than estimated in December: 1,5% instead of 1,6%. In 2021, the ECB estimates growth at 1,5%. 

In the wake of this, the bank also sees inflation lower. This will be 1,2% this year, expected to be 2020% in 1,5 and approximately 2021% in 1,6. If these predictions come true, the ECB will have met the target it was given when the euro was introduced for only one year since 1999: annual inflation below 1% (until 2) or close to 2003%. % (since 2). A very poor performance. 

Be more resilient
All board members agree that the eurozone economy must become more resilient. The bank has therefore decided to reopen the so-called 'TLTRO lending window' for commercial banks. Between September 2019 and March 2021, all commercial banks in the euro area will be allowed to take out these special loans, provided they have sufficient collateral. This is done at the average ECB interest rate and for a period of 2 years. They must then lend that money directly to companies and consumers in the euro zone.

According to Mario Draghi, the president of the ECB, there are 2 sources of disruption to the economic slowdown. The first group includes lower growth in world trade, which is caused by the slowdown in growth in China, the economic goings-on in emerging countries, protectionism and the trade war between China and the United States.

In the other corner of the ring, where the economy is also being hit hard, we find the internal factors. These include the automotive sector in Germany and the Italian economy. 

Take action?
How long these jammers will remain active is the 'one million euro question'. If the answer is 'long', then taking action is a must. If you expect it to blow over in a reasonable time, then as a central bank you don't have to do anything; certainly not when the policy is already very broad. Ultimately, everyone was waiting for Draghi's answer, but unfortunately that didn't come.

If I had to answer that question, I would say that the ECB has been too negative and exaggerated in its decisions this week. There are a number of reasons for this:

• The trade war between China and the United States appears to be being resolved; maybe even this month.
• Protectionism has increased compared to a few years ago. However, this does not increase in the margin.
• The slowdown in growth in China, the problems in emerging countries and lower growth in world trade are closely linked. The emerging countries will probably experience a favorable year this year, for example because the US dollar will not strengthen further and US interest rates will fall. This gives the central banks in emerging countries the opportunity to provide monetary stimulus themselves. 
• Finally, China has taken many stimulus measures in recent weeks and months and this is already bearing the first fruits. I would not be surprised if these measures positively surprise global economic growth later this year.

Monetary polonaise
If I try to place the outcomes of the meeting in the global monetary picture, my conclusion is that the ECB is fully participating in the monetary polonaise. The Fed, who is leading the polonaise, recently pivoted from further monetary tightening to policy easing. It is a step that many central banks followed or indicated they would follow. Experience also shows that when the monetary knights start a polonaise, the financial markets also dance with joy. 

In my view, low EURIBOR rates and downward pressure on other interest rates can be expected in the coming months; especially as the European elections approach. In the elections, the anti-euro parties will probably score better than last time, which (depending on the outcome) could lead to concerns about the survival of the euro.