ECB keeps rates on hold

Mario-Draghi-700x450.jpgThe ECB has decided to keep interest rates on hold in its today’s monetary policy meeting.

The 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.

It has confirmed its asset purchases will remain unchanged at €80bn a month until March 2017 – or longer if needed.

In the aftermath of the Brexit vote, the ECB had already stated it was ready to provide additional liquidity if needed, in euro and foreign currencies.

It also confirmed its commitment to price and financial stability by whatever measures were necessary.

Eurozone GDP growth was slowing to 0.3 per cent quarter-on-quarter in the second quarter after a recovery of 0.5 per cent in the first quarter. This was mostly due to a slack in domestic demand as rising uncertainties in the market, including those related to the UK referendum on EU membership.

For these reasons, IHS Global’s chief UK and European economist Howard Archer says the ECB had a basis to expand its monetary stimulus with more quantitative easing but not with an extra cut in interest rates.

Archer says: “Pressure for ECB action has been lifted by the purchasing managers reporting that overall Eurozone services and manufacturing output growth eased back to a 19-month low in August and the European Commission reporting that overall business and consumer confidence dipped to a five-month low.

“Meanwhile, Eurozone consumer price inflation was only stable at 0.2 per cent in August with core inflation edging down to 0.8 per cent from 0.9 per cent.”