ECB holds rates as Draghi paves way for QE in 2015

The Governing Council of the European Central Bank announced it is keeping interest rates on hold at the its monthly meeting today but says it will reassess its monetary stimulus stance early next year, making quantitative easing likely.

Rates on the main refinancing operations and on the marginal lending facility are presently stuck at 0.05 per cent and 0.3 per cent respectively while the deposit facility remains in negative territory at -0.2 per cent.

ECB president Mario Draghi repeated the the council’s commitment to using ”additional unconventional instruments”, stating that “this would imply altering early next year the size, pace and composition of our measures”.

He stated too that ECB staff has “stepped” up its preparations for further measures and emphasised the potential signalling and portfolio rebalancing effects of QE.

It was revealed that real GDP in the euro area rose by 0.2 per cent, quarter on quarter, in the three months to end of September.

ECB president Mario Draghi said: “This was in line with earlier indications of a weakening in the euro area’s growth momentum, leading to a downward revision of the outlook for euro area real GDP growth in the most recent forecasts.”

Draghi admitted that compared with September 2014 the “projections for real GDP growth have been revised downwards substantially” and presently annual real GDP is projected at increasing by 0.8 per cent in 2014, 1 per cent in 2015, rising to 1.5 per cent in 2016.

The ECB has already begun purchasing covered bonds and asset-backed securities in a bid to bolster the region’s flailing economy and Draghi said that in early 2015 the body will reassess monetary stimulus.

He asserted: “The latest euro area macroeconomic projections indicate lower inflation, accompanied by weaker growth and subdued monetary dynamics,” adding that if necessary, “the Governing Council remains unanimous in commitment to use additional unconventional instruments within its mandate”.

Capital Economics chief European economist Jonathan Loynes says: “In short, QE is finally coming to the eurozone. But it would be optimistic to expect it to transform the region’s economic outlook.”IHS Insight chief UK and European eceonomist Howard Archer says: ”The implications from Mr. Draghi’s comments is that the ECB is now well on the road to QE; and while the ECB would like to have as many Governing Council members on board (notably including the German contingent), there does not have to be unanimity or even a super-majority for this to occur.

”The suspicion has to be though that Mr. Draghi hopes that if the Eurozone inflation outlook deteriorates further, more Governing Council members will swing behind QE.”