As expected, the European Central Bank in a statement said it would keep its key deposit rate unchanged at -0.4%, but also said it would continue to buy 80 billion in euros worth of bonds each month until March 2017 or perhaps longer.
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The London FTSE index was expected to open 10 points lower at 6,848, with the German DAX down 22 points at 10,653 and the French CAC down 7 points at 4,535, according to IG.
Euro inched higher against U.S. dollar as Euro continued its yesterday’s bullish momentum on Thursday after the European Central Bank left interest rates unchanged and stopped short of a formal commitment to further expand its asset-purchase program.
Investors are waiting to hear what ECB President Mario Draghi says about the outlook at a subsequent news conference.
Mixed data over the past month in Europe, including German industrial orders this week that showed the steepest drop in nearly two years, led many market participants to speculate the European Central Bank might take additional actions in order to stimulate Euro Zone growth.
A negative deposit rate means banks have to pay to park excess cash at the ECB overnight, an unusual state of play that has squeezed banks’ profits and sparked fears lenders could pass the charges on to customers. “The governing council tasked the committees with evaluating the options that ensure a smooth implementation of our purchase programme”, he said after the decision.
Declines in similar-maturity Spanish and Italian bonds pared throughout the day as the initial knee-jerk reaction faded, while the euro, which earlier climbed as much as 0.8 percent was 0.3 percent higher at $1.1271 at 5:06 p.m. Frankfurt time. He also said the bank’s low rates were being more effectively transmitted through the banks and credit markets, meaning more effective stimulus.
The European Central Bank lowered slightly its 2017 economic growth and inflation forecasts on Thursday and predicted that price growth would remain below its target through 2018 despite extraordinary stimulus.
“What the European Central Bank can do is to flag what is needed for monetary policy to be even more effective”, Mr Draghi said.
The ECB also refrained from making any tweaks to its massive asset-buying programme to encourage lending and reinvigorate growth, which has seen it purchase over a trillion euros in government and corporate bonds over the past 18 months.
Britain voted in June to leave the European Union, a move that is expected to have major impacts on the 19-nation eurozone, which, taken as a whole, is Britain’s largest trading partner. “Available evidence so far suggests resilience of the euro-area economy to political and economic uncertainties”. In Asia, the Nikkei 225 (CBOE:.NKXQ) dropped 0.32 percent and the Shanghai composite rose 0.13 percent.
“We continue to expect to continue real gross domestic product to grow at a moderate but steady pace”, Draghi said in his opening statement.
The ECB is facing stubbornly low annual inflation of only 0.2 percent despite pumping 1 trillion euros ($1.1 trillion) in newly printed money into the banking system through bond purchases since March 2015.
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The ECB set the tone for the day, leaving its monetary policy unchanged at its September meeting, as expected, and noting that members expect rates to remain at their present level for an “extended period”. “Interest rates have to be low today to be high tomorrow”.
