In line with expectations, the European Central Bank kept current interest rates and levels of stimulus unchanged Thursday despite worries about how Britain’s vote to leave the European Union will affect the continent’s economy.
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Mario Draghi, President of the European Central Bank, will comment on the underlying considerations of these monetary policy decisions at 08:30 EDT/12:30 GMT – you can follow his commentary live in the DailyFX Real Time News feed. The ECB board remains “ready to use all available instruments for the duration of its mandate”, Draghi said.
The ECB now has until its September meeting to see exactly what the economic costs of Brexit are. The main interest will tend to focus on what he didn’t say as there were no hints surrounding any potential changes at the September meeting and there was no mention of any possible re-assessment of policy.
The asset purchase programme (APP) was maintained at €80bn per month until the end of March 2017.
“It’s a problem that needs to be addressed because it’s an obstacle to the transmission of monetary policy”, Draghi said. Draghi has consistently called on euro zone governments to loosen their spending to help out, tweaking his standard statement to argue that government reforms need to be “substantially stepped up”.
Since December, the ECB has pushed interest rates further below zero, accelerated its bond purchases and rolled out a series of four-year loans for banks. “Brexit” is expected to create a huge negative shock for the United Kingdom economy, and simultaneously slow the euro area recovery.
“Following the UK’s referendum, financial markets have weathered the spike in volatility with encouraging resilience”, Mr Draghi said. The ZEW index of German investor sentiment slumped to almost a four-year low on Tuesday, and data published on Wednesday showed a marked fall in eurozone consumer confidence in July.
“The figure that circulated in the aftermath of Brexit was the impact (on euro zone growth) of 0.2-0.5 percent over three years, I believe the Commission has come out with a similar figure of 0.25-0.5 percent”.
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As indicated by Draghi’s speech, the predominant concerns of the European Central Bank at present are NPLs and Italy’s banking sector, as opposed to the fallout from Brexit.
