ECB: Draghi confirms rates, holds QE till Christmas Time

8 years ago - Published in Finance, Fundamental Analysis

The European Central Bank’s (ECB) July policy meeting has ended with policy-makers opting to maintain a cautious tone, presumably to keep a lid on rising Eurozone interest rates and currency.

The ECB kept its deposit rate deep in negative territory and maintained monthly bond purchases at €60-billion, in line with the expectation of most analysts in a Reuters poll.

The central bank said that economic conditions remained positive but attempted to calm markets by striking a somewhat dovish tone and insisting that it would be poised to step in should the outlook take a downward turn.

"If the outlook becomes less favorable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, the Governing Council stands ready to increase the program in terms of size and/or duration," the ECB said in its policy announcement alongside its latest rate decision.

In its statement, the ECB stuck to its previous line that stimulus will remain in place “until the end of December 2017, or beyond”, and until inflation is on a clear upward path. It remains prepared to do more if the economy takes a turn for the worse, in a move that will upset the governing council’s hawks who think the bank needs to do more to convince markets it is serious about winding down its bond buying spree in 2018.

Draghi sent bond yields and the euro sharply higher last month when he argued that improved growth on its own would provide accommodation so the ECB would tighten its own policy to keep the overall level of accommodation broadly unchanged.

Most economists polled by Reuters expect tapering from next year but unlike the U.S. Federal Reserve, which cut buys at each meeting when it ended its own asset buys, the ECB could simply extended the buys at a lower volumes to avoid creating an impression that it was on a preset course to wind down the buys.

Indeed, policymakers told Reuters earlier that they would not want to put an end date on the buys or a schedule on tapering, maintaining flexibility and avoiding a perception that it was on a preset course.