ECB Keeps Record Low Rates But Tapers Bond Purchase Rate To €60bn A Month


The European Central Bank on Thursday kept interest rates at historic lows and its asset-buying programme unchanged, turning the spotlight on president Mario Draghi to hint at his next moves to nurture a still-hesitant eurozone economy.

Investors will be scrutinising Draghi's remarks at a press conference, looking for reassurance that the bank's stimulus programme is still on track after markets were rattled by talk that its massive bond purchases may be drying up.


Members of the governing council voted not to make any changes to the ECB's ultra-loose monetary policy, which consists of record low interest rates, cheap loans to banks and a multi-billion-euro bond-buying programme.

"The governing council confirms that the monthly asset purchases of 80 billion euros are intended to run until the end of March 2017, or beyond, if necessary," the ECB said in a statement.

Its governing council believes the moves, designed to pump cash into the economy and encourage banks to lend to businesses and households, have boosted GDP growth and inflation in the months since its decision.

Under its mandate, the central bank aims to guide the economy towards a healthy inflation rate of just below 2.0 percent.

But growth and inflation remain lacklustre in the 19-nation eurozone, and many observers believe more stimulus is needed.

They were spooked then by a Bloomberg report this month that suggested the ECB may "taper" -- or wind down -- its bond-buying scheme.

While the ECB strongly denied the speculation, Draghi will likely be pressed to reiterate that the bank, far from winding down its asset purchases, is more likely to extend them.

"The bank remains under pressure to assure markets of its ability to do more," analyst Jennifer McKeown of Capital Economics said. "Mr Draghi will at least want to allay fears of early tapering of asset purchases," she added.

- Decision in December -

The governing council's decision to keep interest rates and monetary policy unchanged was widely expected.

The bank's benchmark "refi" refinancing rate has remained at an all-time low of zero percent since March.

Its marginal lending facility is also unchanged at 0.25 percent and the rate on the deposit facility steady at minus 0.40 percent -- meaning banks have to pay to park their excess cash with the ECB.

"The governing council continues to expect the key ECB interest rates to remain at present or lower levels for an extended period of time," the ECB said in a statement.

Private banks have been unhappy with the low interest rates, which squeeze their profits.

But with little sign of governments responding to Draghi's repeated calls to use growth-boosting fiscal policies to complement his monetary interventions, the ECB's ultra-loose policy remains a critical pillar of confidence in the 19-nation eurozone.

Most central bank observers expect Draghi to hold off until December to announce any policy changes aimed at bringing inflation closer to the ECB's mandated target.

Inflation reached its highest level in almost two years in September, at 0.4 percent, but remains far off the ECB's objective.

But the bank believes that without its help, economic performance would be even worse.

Minutes released in early October from September's governing council meeting showed members agreed it was "of crucial importance to preserve the very substantial degree of monetary support" -- and little has changed since then.

A study the ECB released this week showed increased demand for credit from businesses and households and banks softening conditions for offering loans as well as for their repayment -- positive developments which the council will see as the result of its interventions.

"We think the ECB will likely act again in December, when it has new staff projections" of future growth and inflation, Morgan Stanley (Xetra: 885836 - news) analyst Elga Bartsch said.

That will also give the bank time to digest some major events on the political agenda, including the US elections and a crunch referendum in Italy on which Prime Minister Matteo Renzi has staked his career. Both events could trigger market and economic turbulence.

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Source : https://uk.finance.yahoo.com/news/ecb-keeps-rates-record-low-121204845.html

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