ECB holds rates…as Eurozone economic sentiment surges

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ECB president Mario Draghi

The ECB has kept interest rates on hold today with the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility remaining unchanged at 0 per cent, 0.25% per cent and -0.4 pre cent respectively.

The governing council has confirmed its purchases under the asset purchase programme remain at the newly reduced rate of €60bn, which came into effect this month.

They will remain in place until at December.

IG Group’s Josh Mahony, market analyst, says political and inflation risks, which were the main areas of caution at the last ECB meeting, have eased considerably.

With headline inflation falling to 1.5 per cent, core CPI down to 0.7 per cent, and Emmanuel Macron winning the first round of French elections both risks have eased significantly, Mahony says.

“Given the expectation that the French election will follow the Dutch in supporting the European project, we are seeing the 2017 clouds finally clear in favour of stability. Whether that pushes the ECB into a more hawkish mindset remains to be seen. One thing to remember for this meeting is that Draghi loves to talk the euro down. Considering the recent strength of the euro, it would not be surprising if we saw Draghi push back any taper talk for now, in a bid to lower the currency.”

Eurozone sentiment surges

The ECB decision follows positive data out of the Eurozone this morning showing economic confidence at its highest level in almost a decade.

IHS Markit chief economist for Europe and UK Howard Archer says the improvement was spread across most countries, including the four largest economies, and adds that improving employment expectations across all business sectors bodes particularly well for future growth.

It represents the best figures since August 2007.

However, Archer adds the ECB will be disappointed to see consumers’ inflation expectations dipped in April after reaching their best level since October 2013 in March.

IHS is forecasting Eurozone GDP to pick up to 0.5 per cent quarter-on-quarter in Q1 compared to 0.4 per cent in the last two quarters.