ECB keeps money taps wide open but may hint at June tone shift

ECB President Mario Draghi may acknowledge the bloc's improved growth prospects at a 1230 GMT news conference.
ECB President Mario Draghi may acknowledge the bloc's improved growth prospects at a 1230 GMT news conference.PHOTO: REUTERS

FRANKFURT (REUTERS, AFP) - The European Central Bank left its ultra-easy policy stance firmly in place on Thursday as inflation continues to undershoot its target into the fifth straight year, even as economic growth is on its best run since the global financial crisis.

The Frankfurt institution kept its main refinancing rate at 0.0 per cent, the rate on the marginal lending facility at 0.25 per cent, and the deposit rate at -0.4 per cent - meaning banks have to pay to park money with the central bank. It also left untouched plans to buy 60 billion euros of corporate and government bonds per month until December under its "quantitative easing" programme.

The ECB even maintained its bias for further policy easing, leaving the door open to further rates cuts or an increase in asset buys. This is in line with market expectations but at odds with calls from Germany, the euro zone's economic powerhouse, for a gradual reduction of stimulus.

"Incoming data since our meeting in March confirm that the cyclical recovery of the euro area economy is becoming increasingly solid and that downside risks have further diminished," ECB President Mario Draghi told a news conference. "At the same time, underlying inflation pressures continue to remain subdued and have yet to show a convincing upwards trend," he added, justifying the continued stimulus measures.

However, in response to a reporter's question, Mr Draghi noted there had been a debate among ECB council members over the euro zone growth outlook, with some "more sanguine" than others. That, he added, had resulted in a line being added to his introductory statement which noted that downside risks to the growth outlook "relate predominantly to global factors".

The euro weakened slightly against the US dollar following the rates decision after trading near six-month highs, aided by expectations that Mr Emmanuel Macron would win the French presidential vote on May 7.

Elsewhere, the Bank of Japan, also operating deep in unconventional territory, offered its most optimistic assessment of the economy in nine years on Thursday but signalled that it would maintain its massive stimulus effort. Sweden's Riksbank also extended its own asset buys by 15 billion crowns (S$2.37 billion) on Thursday, predicting the first rate hike in the middle of 2018, later than earlier projected.

Having missed its 2 per cent inflation target for years and even flirting with deflation, the ECB is buying 60 billion euros (S$91.3 billion) worth of bonds per month at least until the end of the year and plans to keep interest rates deep in negative territory until much later.

But economic growth is steadily picking up pace, inflation is comfortably above 1 percent and the ECB's policy arsenal is nearly depleted, all fuelling calls by conservative policymakers to start mapping out the way to the exit.