ECB holds rates amid growing headwinds

The European Central Bank kept its interest rates and forward guidance unchanged on July 21, 2016. PHOTO: REUTERS

FRANKFURT (REUTERS) - The European Central Bank kept its interest rates and forward guidance unchanged as expected on Thursday but will likely use a news conference to address a growing list of obstacles that again threaten to derail its efforts to lift growth and inflation.

Italy's bank troubles, Britain's decision to leave the European Union and difficulty in finding enough bonds to buy in its asset purchase programme may all require some action, dashing ECB chief Mario Draghi's hopes that the bank was done after years of extraordinary stimulus measures.

Not keen on hasty moves, Mr Draghi is likely to manoeuvre through on Thursday with verbal action, highlighting the increased risks and opening the door to changes as soon as September, when the bank releases fresh economic forecasts.

The trick will be to sound dovish enough to signal readiness to act but without committing or overly inflating market expectations that could ultimately lead to disappointment, even if the bank provides more stimulus.

The ECB kept its deposit rate at minus 0.4 per cent and the main refinancing rate at 0.00 per cent, both record lows, as it seeks to cut borrowing costs for firms and force banks to lend money out rather than park cash with it.

It also left unchanged its guidance that rates would stay at present or lower levels for an extended period, and well beyond its asset purchase horizon.

Regarding those purchases, the bank repeated that its 80 billion euro per month programme would run until March 2017 or beyond if necessary, until it sees an upward adjustment of inflation toward its target.

Markets' attention now turns to Draghi's 1230 GMT news conference where he will detail the economic outlook.

Join ST's Telegram channel and get the latest breaking news delivered to you.