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Sunday 16 December 2018


Spring Conference

ECB keeps interest rates on hold as ‘expected’

Written by Natalie Tuck

The European Central Bank has announced it will keep interest rates on hold as “expected” by many in the industry.

It means interest rates on the main refinancing operations and on the marginal lending facility and the deposit facility will remain unchanged at 0.00 per cent, 0.25 per cent and -0.40 per cent respectively.

The Governing Council said it 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.

Regarding non-standard monetary policy measures, the Governing Council confirmed that the monthly asset purchases of €80bn are intended to run until the end of March 2017, or beyond, if necessary, and in any case until it sees a sustained adjustment in the path of inflation consistent with its inflation aim.

Commenting on the decision, State Street Global Markets, head of macro strategy Europe Tim Graf said he “expected” the ECB to hold to its current set of policies.

State Street Global Advisors portfolio strategist David Furey added: “We were a bit surprised by the relatively upbeat take on current events and their impact on inflation and inflation expectations. While we think they will stand pat on major innovations for now, as previously announced programmes unfold, we suspect the need to ease may emerge later this year.”

Towry head of investments Andrew Wilson said: “Mario Draghi and the ECB, like Mark Carney and the Bank of England before them, have decided to gather more post-Referendum data before launching into a full scale response. As ever Draghi suggested that there is always more that he can do, but also maintained that governments need to pull their weight in terms of structural reform.

“Markets were not expecting much, despite discussion amongst commentators around the possible broadening of asset purchases and breaking the shape of the “asset key”, given that Germany is hardly the most in need of the stimulus.

“The euro has initially strengthened and equity markets softened, but the real fireworks will have to wait for the Bank of Japan’s impending stimulus plan. This will be followed by expected action from the Monetary Policy Committee of the Bank of England in August, and then back to the ECB again in September reacting to these developments and new data points. “

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