ECB keeps rates on hold in first meeting after Brexit

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The ECB has followed in the footsteps of the Bank of England and kept rates on hold in its first monetary policy decision following the UK’s vote to leave the European Union.

ECB interest rates will remain at “present or lower levels for an extended period of time, and well past the horizon of the net asset purchases”, the governing council confirmed in its statement announcing its decision.

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.

Regarding its asset purchase programme, the governing council confirmed in a statement: “The monthly asset purchases of €80bn are intended to run until the end of March 2017, or beyond, if necessary, and in any case until it sees a sustained adjustment in the path of inflation consistent with its inflation aim.”

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.

June figures saw the eurozone exit deflation and markets on the Continent have recovered from their immediate post-Brexit plunge. Consumer prices were up 0.1 per cent year-on-year in June following dips of 0.1 per cent in May and 0.2 per cent in April.

IHS Global’s chief UK and European economist Howard Archer says the central bank likely held off on taking action before key economic indicators provide information on the impact of the Brexit vote. He points out that quarterly consumer price inflation and GDP forecasts will be available in time for the ECB’s next meeting.

Like the Bank of England, the ECB would like to see inflation return to a target of 2 per cent.

Archer says if the ECB did choose to take any further measures it would likely be in the form of expanding its quantitative easing programme, rather than reducing rates that are already in negative territory.