ECB Keeps Policy, Guidance Unchanged

The European Central Bank reaffirmed its ultra-easy policy stance on Thursday, promising to keep rates steady until after the end of bond buys and maintaining a pledge to extend the purchases, if necessary.

The ECB kept rates at record lows and confirmed that quantitative easing bond purchases would continue at 30 billion euros ($36.5 billion) a month until at least end-September or until it saw a sustained adjustment in the path of inflation.

With the euro zone economy expanding for 20 straight quarters, policymakers are now debating how and when to curb stimulus further, hoping that a rapid, jobs-rich expansion will eventually lift inflation back to its near 2 percent target.

But recent weaker-than-expected economic data and anemic inflation readings this year suggest the bank will take an incremental approach to removing stimulus, raising the risk it will err on the side of caution and withdraw support too slowly.

“The Governing Council expects the key ECB interest rates to remain at their present levels for an extended period of time, and well past the horizon of the net asset purchases,” the ECB added, repeating its long-standing guidance on rates.

Attention now turns to ECB President Mario Draghi’s 1230 GMT news conference, at which he is likely to discuss the economic soft patch, worries over trade protectionism and the potential impact of higher oil prices.

With Thursday’s decision, the ECB’s rate on bank overnight deposits, which is currently its primary interest rate tool, remains at -0.40 percent.

The main refinancing rate, which determines the cost of credit in the economy, remained unchanged at 0.00 percent while the rate on the marginal lending facility — the emergency overnight borrowing rate for banks — remains at 0.25 percent.

Reuters

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Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell