The European Central Bank has left interest rates in the eurozone unchanged at record lows but kept the door open for more cuts in the months ahead as growth and inflation remain sluggish.
Amid signs that the UK’s vote to leave the EU is having little immediate impact on the eurozone economy, the ECB held the single currency bloc’s main interest rate at zero, as widely expected in financial markets. It also decided to continue to buy €80bn (£68bn) of assets a month under its quantitative easing (QE) programme. It reaffirmed that it would run that scheme until March 2017, “or beyond, if necessary”.
Echoing other recent signals that the ECB stands ready to pump more stimulus into the economy, the Frankfurt-based central bank said in a statement: “The governing council continues to expect the key ECB interest rates to remain at present or lower levels for an extended period of time, and well past the horizon of the net asset purchases.”
Eurozone interest rates are already at a record low after the ECB used its March meeting to launch an unprecedented package of growth-bolstering measures. It cut borrowing costs, expanded its QE programme and reduced a key bank deposit rate further into negative territory.
At the ECB’s last policy meeting in July there were no changes made to that package but the bank’s president, Mario Draghi, had said his staff would “continue to monitor economic and financial market developments very closely”.
In a Reuters poll of analysts, nearly all of them expected the ECB to leave interest rates unchanged at this meeting.
Markets are now awaiting a press appearance by Draghi this afternoon for more clues on the future path of interest rates and how the ECB views the impact so far of the UK vote to leave the EU.
Looking ahead to Draghi’s appearance, Jennifer McKeown, senior European economist at the consultancy Capital Economics expected the ECB president to justify the decision to leave policy unchanged by pointing to the positive tone of recent economic data.
“The statement that “monthly asset purchases of €80bn are intended to run until the end of March 2017, or beyond, if necessary” suggests that the Bank has not yet committed to extending the programme by another six months as we had thought that it might. To support the decision, Mr Draghi is likely to point out in the press conference … that the recent news on the economy has been fairly encouraging.”
She expects ECB forecasts published at the news conference to “reveal slight downward revisions to the outlook for growth and inflation”. The recent rise in the euro against the US dollar could also present a threat to the growth outlook.
“Against that backdrop, the bank will need to provide extra policy stimulus before long,” McKeown concluded.
