ECB Maintains Status Quo, All Eyes On Draghi
07 Septembre 2017 - 10:21AM
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The European Central Bank left its interest rates and asset
purchases unchanged and retained its downward bias on asset
purchases, thus leaving it to its chief Mario Draghi to drop any
hint on the future of its massive stimulus during his press
conference set to begin shortly.
The Governing Council, led by ECB President Draghi, kept all its
three interest rates unchanged for a twelfth consecutive policy
session, on Thursday.
The main refi rate was held at a record low zero percent and the
deposit rate at -0.40 percent. The marginal lending facility rate
was kept at 0.25 percent.
"The Governing Council expects the key ECB interest rates to
remain at their present levels for an extended period of time, and
well past the horizon of the net asset purchases," the ECB said in
a statement.
The bank also retained its monthly asset purchases of EUR 60
billion that are set to run till December 2017. The size was
reduced in March from EUR 80 billion.
The current asset purchases "are intended to run until the end
of December 2017, or beyond, if necessary, and in any case until
the Governing Council sees a sustained adjustment in the path of
inflation consistent with its inflation aim", the bank said.
"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 programme in terms of size
and/or duration," the ECB added.
Focus is on Draghi's post-decision press conference that is set
to begin at 8.30 am ET in Frankfurt, when he is expected to signal
what lies ahead for the ECB's massive stimulus - a tapering
announcement in October or further delay in exit, thanks to a
strong euro.
Caution is likely to prevail at the press conference as a
possibly dovish Draghi navigates the subtleties of central bank
communication with his verbal intervention tool to avoid feeding
markets with hopes of an imminent tapering that could further
strengthen the euro and hurt the euro area recovery.
Economists widely expect an actual decision on tapering in
October. They also expect that a modest tapering would only start
in January after the end of the on-going round of asset
purchases.
Draghi is set to unveil the latest ECB Staff macroeconomic
projections during the press conference. Eurozone growth forecasts
are likely to be raised further, while the inflation projections
may come in for another trimming.
In the previous round in June, the bank projected euro area
growth at 1.9 percent this year, 1.8 percent next year and 1.7
percent in 2019. Inflation projections were cut to 1.5 percent for
this year, 1.3 percent next year and 1.6 percent in 2019.
ECB policymakers were already worried about a strengthening euro
in July and pointed out the risk of the exchange rate overshooting
in the future, the minutes of the policy session revealed. They
also stressed that favorable financing conditions are still
supported by the massive stimulus.
The euro has strengthened robustly since late June, when
Draghi's comments in Sintra, Portugal, fed market expectations of
an imminent tapering and sent yields and the euro soaring.
That said, a stronger euro could be reason enough for the ECB to
delay its exit from the massive stimulus. Yet, the question remains
- "For how long?"
Some analysts expect the ECB to entirely wind down its massive
stimulus by the end of next year and start raising interest rates
modestly in 2019.
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