ECB Leaves Interest Rates, Guidance Unchanged Amid Growth Risks
24 Enero 2019 - 02:32AM
RTTF2
The European Central Bank left its key interest rates and
forward guidance unchanged on Thursday, in the first policy session
since the end of its four-year long EUR 2.6 trillion asset purchase
programme in December, as several risks including the persistent
slowing of the economy, global trade tensions and the Brexit chaos
cloud the outlook for Eurozone growth.
The Governing Council, led by Mario Draghi, left the key
interest rates unchanged after the policy session in Frankfurt. The
decision was in line with economists' expectations.
The main refi rate is currently at a record low zero percent and
the deposit rate at -0.40 percent. The marginal lending facility
rate is at 0.25 percent.
Eurozone interest rates were raised last in July 2011 by 25
basis points.
"The Governing Council expects the key ECB interest rates to
remain at their present levels at least through the summer of 2019,
and in any case for as long as necessary to ensure the continued
sustained convergence of inflation to levels that are below, but
close to, 2 percent over the medium term," the bank said in a
statement.
Given the weaker growth and inflation outlook, and the
persistent uncertainties linked to global trade and politics, some
economists now expect the bank to raise interest rates only in
2020.
That would make Draghi, the only ECB President thus far who did
not raise interest rates during his tenure.
ECB Chief Economist Peter Praet's term is set to end in May and
Draghi's tenure in October.
"Regarding non-standard monetary policy measures, the Governing
Council intends to continue reinvesting, in full, the principal
payments from maturing securities purchased under the asset
purchase programme for an extended period of time past the date
when it starts raising the key ECB interest rates, and in any case
for as long as necessary to maintain favorable liquidity conditions
and an ample degree of monetary accommodation," the ECB added.
ECB policymakers are wary of saying that the risks to the euro
area economic outlook are tilted to the "downside". In December,
Draghi said the risks were "broadly balanced".
Minutes of the December session showed that ECB rate-setters
assessed the risk situation as "fragile and fluid", saying that
risks could quickly regain prominence or new uncertainties could
emerge.
However, some members cited the emergence of new upside risks
and said the recent negative news have been factored into the
downward revision of the staff projection.
Draghi is set to hold his post-decision press conference at 8.30
am ET, when he is set to face several questions on the likelihood
of the bank re-launching it offer of cheap loans for longer term.
Policymakers debated the move in December.
Under the ECB's earlier tool named the targeted longer-term
refinancing operations, or TLTRO, the ECB gives longer-term loans
to financial institutions at attractive rates to boost lending in
the real economy.
Reporters are also expected to pose questions on topics ranging
from trade protectionism, China slowdown to those on the domestic
front such as the the Italian budget crisis and the "yellow vests"
protests in France.
Recent economic data such as confidence indicators and the
purchasing managers' survey measures have also been relatively weak
and suggested a broad-based slowdown across the big four euro
economies.
Earlier on Thursday, survey data from IHS Markit showed that
Eurozone private sector expanded at the weakest pace in
five-and-a-half years at the start of the year, led by slower pace
of growth in both manufacturing and services. The weakness of the
auto sector remained a key area of concern, among others.
That said, the German economy ministry has said the biggest euro
area economy likely avoided slipping into a technical recession in
the fourth quarter.
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