ECB Guidance Is Not Tilted Toward Rate Hike

08 Juin, 2019, 16:54 | Auteur: Auguste Feret
  • ECB Guidance Is Not Tilted Toward Rate Hike

(EurActiv) - The European Central Bank decided on Thursday (6 June) to keep the low interest rates unchanged at least until mid-2020, and confirmed that it is considering further monetary stimulus, including further rate cuts and restarting the asset purchasing programme, to counter the trade tensions and Brexit uncertainty. But that's slim comfort for banks, whose net interest margins - the difference between the rate at which they borrow and the rate at which they lend - have been squeezed.

The ECB's main refinancing rate remains at zero, while financial firms must pay a negative interest rate of 0.4 percent on deposits with the central bank.

Notably, investors took the ECB's new message that rates would "remain at their present levels at least through the first half of 2020" as ruling out any cut until then.

"Several members raised the possibility of further rate cuts". And now we have the threat of rising protectionism, the geopolitical dangers that we have seen.

Draghi himself said central banks and the markets have been navigating troubled waters for years, and may continue to do so.

"Core" inflation, which excludes volatile items like food and energy, is still weaker.

With the bloc's inflation prospects diminishing rapidly, ECB President Mario Draghi sought to reassure investors that the central bank was ready to act if needed to support an economy hurt by weaker global trade and that it could even resort to once-taboo measures.

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It has held rates at rock-bottom and completed a "quantitative easing" (QE) bond-buying scheme amounting to 2.6 trillion euros ($2.9 trillion) between 2015 and 2018.

Both were created to increase lending, economic growth and ultimately inflation.

Other risks weigh on the eurozone, including a budget confrontation between Brussels and Rome, Greek elections and a possible no-deal Brexit following the departure of British Prime Minister Theresa May. But Draghi said European Central Bank governors had been forced to reassess this judgment given US-China trade tensions, the continued uncertainty about the timing and terms of Brexit, and "more generally the uncertainty about global trade growth".

The ECB may well have to loosen monetary policy again.

"The policy space is there", Draghi said, although "we have not discussed which contingency would call for which instrument". "Draghi would have to sound very concerned about the growth and inflation outlook to cause a reaction in the euro", said Antje Praefcke, an analyst at Commerzbank, in a note to clients.

Meanwhile, London's FTSE 100 had posted a gain of 0.55 percent, and Milan-traded equities had wrapped up the day higher despite another choppy session for the Italian lenders, shedding more than 1.2 percent on Thursday's (June 6th) intra-day trading.

But price stability in the single currency area will not be his responsibility for much longer.

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