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 | Definition The European Central Bank Governing Council consists of 16 members. The Committee meets twice a month. The first monthly meeting of the month is devoted to monetary policy. Changes in monetary policy are announced immediately after the meetings. A press conference is held about 45 minutes after the meeting ends. A statement is read concerning their action -- or lack of it -- followed by a question and answer period. Unlike other major central banks, the ECB does not publish meeting minutes or make voting records on monetary policy issues public. Why do Investors Care? The European Central Bank determines interest rate policy at their Governing Council meetings. The Council is composed of the six members of the Executive Council and 12 presidents of member central banks (Bank of France, Bundesbank, etc). The Governing Council meets twice monthly (usually the first and third Thursdays of the month). Monetary policy issues are generally discussed only at the first meeting of the month. The European Central Bank has an established inflation ceiling of 2 percent. The ECB's measure of inflation is the harmonized index of consumer prices (HICP). As in the United States, European market participants speculate about the possibility of an interest rate change at these meetings. If the outcome is different from expectations, the impact on European markets can be dramatic and far-reaching. The interest rates set by the ECB serves as a benchmark for all other rates in the eurozone. The level of interest rates affects the economy. Higher interest rates tend to slow economic activity; lower interest rates stimulate economic activity. Either way, interest rates influence the sales environment. In the consumer sector, few homes or cars will be purchased when interest rates rise. Furthermore, interest rate costs are a significant factor for many businesses, particularly for companies with high debt loads or who have to finance high inventory levels. This interest cost has a direct impact on corporate profits. The bottom line is that higher interest rates are bearish for the stock market, while lower interest rates are bullish. | |