FRANKFURT • The European Central Bank (ECB) left interest rates and its mass bond-buying programme unchanged yesterday, confirming expectations it would play for time as it charts a way out of easy-money policy.
Governors kept the bank's main refinancing rate at 0 per cent, the marginal lending rate at 0.25 per cent, and the deposit facility rate at -0.4 per cent, meaning banks have to pay to park their cash with the ECB, a spokesman said.
Neither did policymakers adjust the ECB's quantitative easing (QE) programme of €60 billion (S$97 billion) per month of government and corporate bond purchases.
"A very substantial degree of monetary accommodation is still needed for underlying inflation pressures to gradually build up and support headline inflation developments in the medium term," ECB chief Mario Draghi said at a press briefing after the announcement.
He also said the ECB has significantly lifted this year's growth forecast for the euro zone from 1.9 per cent to 2.2 per cent, while projections for next year and 2019 remained unchanged at 1.8 per cent and 1.7 per cent, respectively.
Mr Draghi had, for months, put off any official discussion over the path of QE beyond this year, amid concerns over low inflation and the potential market disruption at any hint of an exit.
Main refinancing rate.
Deposit facility rate.
Marginal lending rate.
Asset-purchase target a month.
That changed this week. Governing Council members were presented with documents exploring scenarios, including different combinations for the volume and length of asset purchases, according to euro-area officials familiar with the matter.
The euro pared its gains after the decision, and traded up 0.5 per cent at US$1.1973 at 1.47 pm. The Stoxx Europe 600 Index was led higher by technology companies, while core bonds across the region declined. S&P 500 Index futures were flat and Treasuries rose.
The ECB will have spent almost €2.3 trillion on debt by the end of the year, and the currency bloc's broadening recovery has spurred calls for monetary support to be pared back. The challenge is to provide assurance that the process, whenever it starts, will be gradual. The next policy meeting is scheduled for Oct 26.
"October is probably a sweet spot for them to announce tapering, because you then tell market participants early enough and you give the people, who deal with the nitty gritty of the purchase programme, enough time to prepare for a start in January," Dr Elga Bartsch, chief European economist at Morgan Stanley in London, said before the decision.
Some policymakers are especially concerned about a potential overshoot of the euro, which is up more than 13 per cent against the US dollar this year, and last month climbed above US$1.20 for the first time since the ECB announced the launch of the QE 21/2 years ago.
ECB has slightly lowered its inflation outlook for next year and 2019, according to a euro-area official familiar with a draft document distributed to national central banks. The previous projections in June foresaw inflation of 1.3 per cent next year and 1.6 per cent in 2019.
The slowness of consumer price growth may give Mr Draghi cause to wait as long as possible.
Another reason to hold off is that the US Federal Reserve, in the endgame for its own QE programme, is expected to announce soon how it will unwind its balance sheet. That could have an impact on bond yields and exchange rates.
Meanwhile, some economists have noted that unless the ECB starts reducing its monthly purchases, it will soon run into a shortage of debt to buy.
AGENCE FRANCE-PRESSE, BLOOMBERG