The ECB President Mario Draghi said at a press conference here that the interest rates will remain at present or lower levels for an extended period of time, and “well past the horizon of our net asset purchases”. We do not forecast any further rates cuts from the European Central Bank. That could include hints about further stimulus in the form of another rate cut, or extra quantitative easing, and when that stimulus might come.
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Following today’s announcement, the ECB’s headline rate remains at zero per cent, the deposit rate at negative 0.4 per cent and the marginal lending facility at 0.25 per cent.
USA and European equity markets have been on a tear due to upbeat company earnings and encouraging US economic data, helping them rebound from losses tied to Britain’s stunning vote to leave the European Union a month ago.
Euro zone bank stocks rose as the ECB, which kept interest rates on hold at a policy meeting on Thursday, signalled its intent to address some of the problems in the sector, which has slumped 27 per cent in 2016. If warranted, the Council will act will all instruments available to push the inflation rate higher.
The ECB’s stimulus programme, where it buys €80bn of bonds a month, has also been left unchanged and will run until March 2017 and beyond “if necessary”.
Speaking after the ECB’s decision, Draghi said that the ECB’s assessment was that financial markets in the euro area had “weathered the spike in uncertainty and volatility with encouraging resilience”. Economists foresee the central bank waiting until its next monetary-policy meeting on September 8 to add stimulus, most likely by extending quantitative easing.
It was widely expected there would be no interest rate change at this month’s meeting with expectations instead pinned on the September meeting.
How much support will the ECB’s asset purchases offer?
Monetary policy makers around the world are grappling with the fall-out from Britain’s June 23 referendum.
ANALYST QUOTE: “Mario Draghi’s speech is hotly anticipated by investors as they look for clues and guidance on what measures the central bank will take post Brexit to navigate through uncertainty”, said Alex Wijaya, senior sales trader at CMC Markets.
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But while analysts polled by Reuters cut their 2017 euro zone growth forecasts to 1.3 percent from 1.6 percent, they left their inflation projection unchanged at 1.3 percent, a mixed reading for the European Central Bank, which targets inflation at just below 2 percent.
