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The European Central Bank will release the interest rate decision later in the day. Analysts expect interest rates will remain at a record low level at 0.25%. The major problem of the Eurozone is the low inflation. The ECB President Mario Draghi has many times stated that the central bank will take appropriate measures to tackle low inflation. ECB’s goal is a 2% inflation.
The Organization for Economic Cooperation and Development and International Monetary Fund Managing Director Christine Lagarde put under pressure the ECB to act as soon as possible.
On the one hand, the inflation in the Eurozone in April was better than in the previous month. The harmonised consumer price index climbed 0.7% in April (March: 0.5%). Analysts expected a rise of 0.8%. It is less than half of 2% target, but the likelihood of the ECB further stimulus measures should be decreased.
On the other hand, there is the high exchange rate of euro. The strong euro affects earnings of the export companies in the Eurozone. A stronger euro makes Eurozone’s goods less competitive abroad.
French Prime Minister Manuel Valls said over weekend the euro was too strong and "more appropriate" monetary policy was needed to weaken the euro. German Chancellor Angela Merkel's spokesman Steffen Seibert answered indirectly that the level of the euro is an issue for the European Central Bank and not an issue for politicians. Different opinions complicate the decision-making.
Eurozone’s economy is improving. Purchasing
managers’ indexes for Spain and Italy and euro-area retail sales data beat
economists’ forecasts. Spanish 10-year debt yields decreased to a record 2.92%.
Portugal announced it is ready to exit its three-year bailout programme. All
this leads to increasing demand for the euro.
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