ECB keeps interest rates unchanged

ECB President Mario Draghi.
ECB President Mario Draghi.

It will start buying corporate bonds next week as stimulus measures kick in

VIENNA • The European Central Bank (ECB) kept its stimulus programme unchanged and said it will start buying corporate bonds next week, as measures announced two months ago kick in.

The governing council left the main refinancing rate at zero, the deposit rate at minus 0.4 per cent, and asset purchases at €80 billion (S$123 billion) a month.

ECB president Mario Draghi told a news conference that the latest staff economic projections suggest area-wide inflation would average 0.2 per cent this year, and then accelerate to 1.3 per cent next year and 1.6 per cent in 2018.

"The governing council will closely monitor the evolution of the outlook for price stability and, if warranted to achieve its objective, will act by using all the instruments available within its mandate," he added.

Two months after announcing fresh stimulus measures, policymakers are putting them into action while at the same time warning that all monetary policy can do is to buy time.

Officials have been increasingly vocal in their criticism of governments for failing to use fiscal room or implement the structural reforms that are critical to lifting the currency bloc's growth potential.

KEEPING A CLOSE WATCH

The governing council will closely monitor the evolution of the outlook for price stability and, if warranted to achieve its objective, will act by using all the instruments available within its mandate.

ECB PRESIDENT MARIO DRAGHI

"We had all the big policy announcements a couple of months ago, and now is the time for implementation," said chief European economist Sarah Hewin at Standard Chartered Bank. "We know that the governing council feels... that it has done all the heavily lifting so far and governments need to take action."

The Organisation for Economic Cooperation and Development lambasted rich-world nations on Wednesday, saying they have failed to overhaul their economies and are overburdening central banks.

That echoes sentiment from the International Monetary Fund, which wants fiscal action and structural reforms to complement loose monetary policy.

The euro turned higher, and was up 0.2 per cent at 1.1217 per US dollar after Mr Draghi spoke. The 19-nation euro has fallen about 1 per cent against the US dollar since April.

European stocks rebounded yesterday from their worst two-day drop in four weeks, with banks and miners performing the best after dragging the Stoxx Europe 600 Index lower in the past two days. The Stoxx 600 added 0.3 per cent at 12.51pm in London.

Mr Draghi said the bank had not made a decision on whether to grant Greece access to cheap money. He said that it would be discussed after it was ascertained whether Athens had adopted agreed "prior actions".

BLOOMBERG, REUTERS

A version of this article appeared in the print edition of The Straits Times on June 03, 2016, with the headline 'ECB keeps interest rates unchanged'. Print Edition | Subscribe