ECB Keeps Rates on Hold


The ECB left its benchmark refinancing rate unchanged at 0% for the fourth straight month in July, as widely expected. Policymakers considered that European markets have weathered the uncertainty experienced in the days after the UK’s referendum with encouraging resilience and that the current monetary policy measures have helped keep market stress contained.

Both the deposit rate and the lending rate were also kept at -0.4 percent and 0.25 percent, respectively.

The quantitative easing programme was kept at €80 billion a month amid fresh concerns over a possible shortage of eligible securities at prices that meet the ECB’s rules. Meanwhile, the ECB is likely to downgrade their projections for growth and inflation in September.

Excerpts from the Introductory statement to the press conference by Mario Draghi:

Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged. We continue to expect them to remain at present or lower levels for an extended period of time, and well past the horizon of our net asset purchases. Regarding non-standard monetary policy measures, we confirm that the monthly asset purchases of €80 billion are intended to run until the end of March 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.

Today we discussed developments since our last monetary policy meeting in early June. Following the UK referendum on EU membership, our assessment is that euro area financial markets have weathered the spike in uncertainty and volatility with encouraging resilience. The announced readiness of central banks to provide liquidity, if needed, and our accommodative monetary policy measures, as well as a robust regulatory and supervisory framework, have all helped to keep market stress contained. Financing conditions remain highly supportive, which contributes to a strengthening in credit creation. They continue to support our baseline scenario of an ongoing economic recovery and an increase in inflation rates.

At the same time, given prevailing uncertainties, the Governing Council will continue to monitor economic and financial market developments very closely and to safeguard the pass-through of its accommodative monetary policy to the real economy. Over the coming months, when we have more information, including new staff projections, we will be in a better position to reassess the underlying macroeconomic conditions, the most likely paths of inflation and growth, and the distribution of risks around those paths. If warranted to achieve its objective, the Governing Council will act by using all the instruments available within its mandate.

ECB | Joana Ferreira | joana.ferreira@tradingeconomics.com
7/21/2016 3:03:18 PM