The European Central Bank kept its policy unchanged as expected on Wednesday, maintaining interest rates at record lows and keeping its guidance for steady interest rates this year despite a sharp slowdown in economic growth.
With the economy and inflation both slowing, the ECB has already backtracked on its plans to tighten policy this year, unveiling instead even more stimulus to prop up an export-focused economy now struggling amid a global slowdown in trade.
But having unveiled fresh measures just last month, the ECB can afford to wait before contemplating any further steps, keeping its last remaining policy powder dry in case the growth downturn becomes more severe than now feared.
“The Governing Council now expects the key ECB interest rates to remain at their present levels at least through the end of 2019, and in any case for as long as necessary,” the ECB said in a statement, reaffirming its interest rate guidance, reports Reuters.
While this policy is out of sync with market expectations, which put the first hike in 2021, policymakers have dismissed the significance of the disconnect, arguing that economic conditions would impact the eventual move and market prices simply reflect the changing outlook.
Attention now turns to ECB President Mario Draghi’s 1230 GMT news conference, at which he is likely to say that risks to growth remain on the downside and the bank remains ready to act with all available instruments.
Investors will also look to see if Draghi elaborates on his recent comments that the ECB would study whether negative rates are starting to have unintended side effects.
With Wednesday’s decision, the ECB’s rate on bank overnight deposits, which is currently its primary interest rate tool, remains at -0.40 per cent.
The main refinancing rate, which determines the cost of credit in the economy, remained unchanged at 0.00 percent while the rate on the marginal lending facility — the emergency overnight borrowing rate for banks — remains at 0.25 per cent.