The EU central banker added the ECB board “will continue closely monitoring economic and financial conditions” in the wake of the Brexit.
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The ECB is widely expected to leave policy unchanged but the “duration of ECB’s quantitative easing program, as well as the composition of its portfolio are expected to be the major talking points”, wrote Ipek Ozkardeskaya, senior market analyst at London Capital Group, in a note. He projected the failed coup in Turkey would have only a limited impact on the eurozone but could pose a huge burden should the political instability become drawn out. Park Jong-hong, Arirang News.
At Thursday’s meeting, the ECB kept its rate on bank overnight deposits, generally seen as its primary interest rate tool, at -0.40 per cent.
But Draghi also noted that growth and inflation were both moving along the path projected in June so more evidence, including fresh staff projections in September, were needed before any decision.
The rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility now stand as 0 per cent, 0.25 per cent and -0.40 per cent respectively. That can be a problem for the ECB’s purchases, since it has a self-imposed rule not to purchase assets yielding less than its deposit rate, which is itself negative at minus 0.4 percent.
The ECB, which regards an inflation rate of close to but just under 2.0 percent as conducive to healthy economic growth, has rolled out a series of measures in recent years to drive up the single currency bloc’s chronically low inflation rate.
After Mr Draghi’s bullish tone the value of the euro rose about 0.34 per cent to $1.1056, from $1.102 previously.
Some banks predict the central bank will run into shortages of certain bonds as its QE programme hoovers up debt faster than governments issue it.
“Draghi didn’t really say much so people will go for curve flattener trades going forward”, said one head of fixed income trading at a European bank. Still, a major concern is how much further the European Central Bank can go, with its €1.7 trillion asset-buying programme, increasingly constrained by ultra-low yields.
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Jennifer McKeown, senior European economist at Capital Economics, said: “Admittedly, the ECB has only recently implemented extra asset purchases and bank lending operations and the recent modest weakening of the euro has removed some of the pressure to do more”.
