ECB keeps rates, policy guidance unchanged

European Central Bank chief reiterates that officials will extend stimulus if needed

FRANKFURT • The European Central Bank (ECB) yesterday kept interest rates and policy guidance unchanged as it tried to sustain a long-awaited rebound in consumer prices.

The bank's 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$122 billion) a month.

Speaking at a news conference after the decision, bank president Mario Draghi said the ECB sees no fundamental sign of sustained inflationary pressures in the euro area as he reiterated that officials will extend stimulus if needed.

"We remain committed to preserving a very substantial degree of monetary accommodation," he said. There is "no convincing upward trend" in core inflation, Mr Draghi said, adding that "we will continue to act if warranted by using all instruments available in mandate".

The comments keep the central bank on track for a potential extension of its bond-buying programme past March next year, the currently scheduled end-date, as predicted by economists.

Mr Draghi said the governing council did not discuss any extension or tapering of the programme at this meeting, while noting that the publication of fresh economic forecasts in December will help the decision then - and that an abrupt end to purchases is "unlikely".

The ECB head said earlier this month that he sees inflation in the euro area nearing the central bank's target of just under 2 per cent by late 2018 or early 2019. 

He had announced that the central bank's committees were reviewing options to allay concerns that quantitative easing would run out of bonds to buy.

Mr Draghi's remarks caused the euro to fluctuate. The single currency rose as much as 0.6 per cent versus the US dollar, then erased gains. European stocks slid, with the Stoxx Europe 600 Index down as much as 0.8 per cent, with mixed earnings contributing to losses. 

The euro zone economy is chugging along, inflation is at a two-year high, national budget proposals suggest a bit more fiscal support, and the early impact on euro zone economies of Britain's vote to leave the European Union has been muted.

Mr Draghi said third-quarter growth in the euro zone was expected at around the same 0.3 per cent achieved in the second quarter, while noting that risks to that outlook remained tilted to the downside, largely due to external factors.

For the ECB, the root of the problem is that inflation is still too weak and may not hit the target for another two to three years at the earliest.

Wage growth, meanwhile, remains weak, core inflation is stuck below 1 per cent and unemployment is high, suggesting that the rise is far from the sustained increase the ECB had hoped for.

BLOOMBERG, REUTERS

A version of this article appeared in the print edition of The Straits Times on October 21, 2016, with the headline 'ECB keeps rates, policy guidance unchanged'. Print Edition | Subscribe