The European Central Bank has left interest rates on hold at record lows and reiterated its commitment to keep monetary stimulus in place until the eurozone’s economic slowdown reverses course.
In its latest monetary policy announcement on Wednesday the bank’s governing council kept its benchmark main refinancing rate at zero and its deposit rate at minus 0.4 per cent. The council said it expected to keep official borrowing costs for the region on hold “at least through the end of 2019”.
The 25-member body also said it planned to reinvest bonds maturing under its €2.6tn quantitative easing programme “for an extended period of time past the date when it starts raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation”.
The decision to leave policy unchanged was widely expected after the bank unveiled new stimulus measures at its March policy vote.
Wednesday’s announcement came as the ECB acknowledged that the eurozone is still struggling to recover from a slowdown that started in the second half of last year.
On Tuesday the International Monetary Fund became the latest organisation to cut its 2019 forecast for growth in the region — bringing it closer to other estimates, including the ECB, which now forecasts an expansion of just 1.1 per cent.
The central bank’s policymakers think growth is more likely to miss that target than exceed it, warning that risks to the outlook have “moved to the downside”.
ECB president Mario Draghi has so far insisted that the eurozone’s return to stronger growth has been “delayed” rather than “derailed”.
But at a press conference on Wednesday he said that the economic weakness had proved “somewhat longer lasting” than had previously been expected, having continued into the early months of this year driven by a slowdown in external demand.
The council expects that weakness to continue for the rest of the year, he added.
But the estimated probability of a recession “remain low”, Mr Draghi said; falling unemployment and rising wages in particular were a positive factor.
Wednesday’s meeting follows the news that one of the risks that most worries the council – an intensification of the global trade war – is in danger of being realised.
US President Donald Trump threatened on Tuesday to impose tariffs on $11bn-worth of European goods exports, in a significant worsening of trade tensions between Washington and Brussels.
The ECB is already planning a series of auctions of cheap central bank cash — known as targeted longer-term refinancing operations, or TLTROs — in an attempt to stave off credit shortages.
On Wednesday Mr Draghi said that details of this scheme would be released at one of the bank’s forthcoming meetings and the pricing of the new loans would take into account the trade-off between the economic stimulus that negative rates offer versus the impact they have on banks’ balance sheets.
The TLTROs will particularly assist small and medium sized enterprises to access finance, he said.
The bank could also switch to a tiered system for its negative rates policy, a move that would alleviate pressure on the region’s lenders which are paying €7.5bn a year to central banks in the eurozone in exchange for holding their assets on deposit.
A tiered system would pave the way for the ECB to strengthen its forward guidance on interest rates and extend its commitment to keep rates on hold until 2020.
Claire Jones, FT
