The ECB is scheduled to make its latest interest rate decision public on Thursday as the market holds a major expectation that all major rates will remain the same, the market is however filled with uncertainty as to whether bond purchases will be extended beyond March 2017.
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Policymakers made no any changes to the ECB’s ultra-loose monetary policy, keeping its asset-buying policy steady at 80 billion euros (S$121.17 billion) per month and holding eurozone borrowing costs at record lows.
“Transmission of monetary policy has never worked better than it does today”, he added. In June, they forecast inflation of 1.3 percent for next year and 1.6 percent in 2018.
Markets now turn their attention to ECB President Mario Draghi’s 1230 GMT news conference, where he will unveil fresh GDP and inflation forecasts. It has poured 1 trillion euros of newly created money into the banking system through bond purchases, out of what is to be 1.74 trillion euros through at least March 2017.
The euro hit a two-week high, bond yields across the eurozone rose and stock markets in the region fell on his confirmation that an extension of the central bank’s asset-purchase programme was not discussed at the meeting. Inflation has undershot the ECB’s target for more than three years and is expected to stay below target for years to come as growth remains weak, unemployment hovers near 10 percent and the economy struggles with large slack.
Draghi also took pains to reassure markets that he would not hesitate to ease policy if the inflation outlook warranted it.
The ECB’s stance wasn’t entirely unexpected given the relative strength of recent economic data.
Its stimulus measures so far have included cutting the benchmark interest rate to zero, and the rate on deposits from commercial banks to minus 0.4 percent.
Still, each of these changes would generate concern or even outright opposition from hawks and the growing camp of moderates on the Governing Council, who worry about the unintended negative effects of the ECB’s extraordinary stimulus.
It is becoming increasingly clear that the Eurozone is entangled in a losing battle with faltering growth while static inflation levels continue to question the ECB’s credibility.
So far, the European Central Bank has slashed its benchmark interest rate to zero, with the aim of lowering borrowing costs for companies and consumers. “So they could say something like they will consider a hike in coming months”, she said.
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On Thursday, the European Central Bank left the main lending rate at 0%, the rate paid on deposits left overnight at negative 0.4% and the marginal lending facility at 0.25%.
