The European Central Bank kept its key interest rates unchanged for a fifth consecutive session and retained its asset purchases, apparently setting the stage for December action as policymakers explore how to implement any extension of stimulus.
The Governing Council, led by ECB President Mario Draghi, held the refi rate unchanged at a record low zero percent in the policy session held in Frankfurt.
The deposit rate was maintained at -0.40 percent, and the marginal lending facility rate at 0.25 percent. The three rates were previously lowered in March.
"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," the bank said in a statement.
The bank also confirmed that the monthly asset purchases of EUR 80 billion are intended to run until the end of March 2017, or beyond, if necessary, and in any case until a sustained adjustment in the path of inflation consistent with its inflation aim is seen.
The latest policy decision was in line with economists' expectations.
Draghi is set to begin his customary post-decision press conference at 8.30 am ET, when he is likely to face questions on topics including plans for a stimulus extension, tapering of bond purchases, German banking problems and the Italy referendum.
Analysts have all but ruled out any talk of 'tapering' of bond purchases from Draghi on Thursday, rumors of which triggered a sell-off in bonds and boosted the benchmark 10-year yields of the euro area big four nations earlier in the month.
Draghi could ill afford such a 'taper-tantrum' amid the sluggishness in the economy and a complex political environment in Europe. However, analysts doubt if the bank has exhausted its portfolio of eligible securities to buy.
Further, a realization that monetary policy has reached its limits in trying to boost the growth and inflation could also tie the bank's hands. Draghi is likely to strongly repeat a call for fiscal and structural reform support.
"The bank remains under pressure to assure markets of its ability to do more," Capital Economics economist Jonathan Loynes said. "Draghi will at least want to allay fears of early tapering of asset purchases."
The economist also expect Draghi to hint that further interest rate cuts are possible despite indications from the latest Bank Lending Survey that negative rates are harming banks' profitability.
Many economists have started to suggest that the bank would opt to scale down its asset buys after March next year or return to its original size of EUR 60 billion monthly purchases. The size was boosted by EUR 20 billion in March this year.
For now, economists expect the bank to extend stimulus by at least six months in its December 8 policy meeting after policymakers are equipped with December ECB Staff macroeconomic projections.
During the previous meeting, Draghi revealed that the relevant committees have been tasked with the evaluation of options that ensure a smooth implementation of its purchase programme.
The bank will have to redesign its programme and loosen its self-imposed strict rules if it chooses to extend the stimulus, or risk running out of quality debt to buy.
Despite some modest strengthening in some key economic indicators recently, euro area economic recovery remains fragile and the ECB is trying hard to safeguard it from external risks such as the uncertainty surrounding 'Brexit', the December 4 constitutional referendum in Italy, and a slowdown in global trade.
Within the single currency bloc, problems surfacing in the German banking sector are causing concerns amid existing worries over the ECB's negative interest rates hurting bank profitability.
Eurozone inflation accelerated in September to its highest level since late 2014, but at 0.4 percent it is quite far from the ECB's 'below, but close to 2 percent' goal. The figure has been below the target since early 2013.
by RTT Staff Writer
For comments and feedback: editorial@rttnews.com
Business News
