ECB leaves rates unchanged; Greece and inflation in focus

The European Central Bank left its key rates unchanged at record lows Wednesday, with the central bank likely to focus on how the region’s economy is doing under the continuing threat of a Greek debt default.

The central bank left its main interest rate unchanged at a record low of 0.05 percent, its deposit facility at -0.20 percent and the marginal lending facility at 0.3 percent.

Investors now await ECB President’s Mario Draghi’s press conference at 12.30 GMT and will be listening closely for word on how the quantitative easing (QE) programme has been progressing.
Inflation forecasts are likely to be in focus, as the bank is expected to revise up their near-term projections following a positive run of recent data.

“The previous forecasts from March were expecting euro area headline inflation to remain below zero until August. The ECB’s gross domestic product (GDP) growth forecast, by contrast, will probably continue to show relatively optimistic average growth of around 0.5 percent quarter-on-quarter, over coming quarters,” Robert Kuenzel, director of Euro Area Economic research at Daiwa Capital Markets said.

After years of promises and various liquidity programs, Draghi announced in January that the bank would start to buy sovereign bonds in a quantitative easing (QE) program. The bank started its massive 60-billion-euro-a-month ($66.3 billion) bond-buying program on March 9.

Greece is also likely to be unavoidable at the conference, as the indebted country is in the process of drawing up an agreement with its creditors.

On Tuesday, the European Commission, European Central Bank (ECB) and International Monetary Fund (IMF) drafted the broad lines of an agreement to put to the Greek government, according to Reuters, in a bid to resolve months of tense negotiations over Greek reforms and debt.

A Greek government official told CNBC Wednesday that the Athens government hadn’t yet seen the proposals, however.

Any offer of a deal from creditors puts the ball firmly in Greece’s court, although the consequences of it rejecting an agreement could be dire.

Athens faces a 300 million euro ($327.9 million) payment to the International Monetary Fund (IMF) on Friday, but there are fears the country cannot honor the debt without further financial aid.

“Draghi will also have to give a view on the sharp bond market correction that began in late April, although he will probably sound relaxed, possibly characterising the sharp yield rises as an adjustment to earlier overshooting,” Kuenzel said.

“We also expect Draghi to stick to his familiar lines stressing Greece’s continued place in the euro area, the solvency of its banks, and the need for a comprehensive agreement on reforms to be reached very soon. He is also likely to confirm that the Governing Council yesterday voted to raise Greece’s ELA limit by to 80.7 billion euros ($89.75 billion),” he added.


Craig Erlam
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the BBC and The Telegraph, and he also appears regularly as a guest commentator on Bloomberg TV, CNBC, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.