ECB Rate Decision

A single interest rate has to fit twenty-odd economies with different growth rates, fiscal positions and inflation histories. That is the job of the ECB's Governing Council, made up of the six Executive Board members and the governors of every euro-area national central bank, with voting on a monthly rotation among the governors. It sets monetary policy roughly every six weeks, and the decision is announced in a press release followed by a press conference with the President.

Calendars traditionally label the event by the main refinancing rate, the rate on the ECB's weekly lending operations. Since the Eurosystem now holds a large surplus of reserves, the deposit facility rate is the one that actually steers money-market rates, and the ECB has said it signals its stance through that rate. All three key rates are announced together, so the main refinancing figure remains a reliable marker of any change.

The press conference often matters more than the decision. The President reads an introductory statement and then takes questions, and markets parse answers about data dependence, the balance of risks and how unanimous the council was. Staff macroeconomic projections, published quarterly, add forecasts for growth and inflation. Reactions tend to show up first in German bund yields and EUR/USD, then in European bank stocks, which are sensitive to the rate outlook.

The ECB also has tools the Fed lacks, including an instrument designed to contain unwarranted widening of member-state bond spreads. Announcements about those tools can move Italian and other periphery debt independently of rates.