ECB keeps rates, liquidity unchanged

VALLETTA • The European Central Bank left interest rates and its money-printing programme unchanged yesterday and bank president Mario Draghi said it would review in December what more it could do to tackle the threat of weak inflation.

Falling commodity prices and emerging market concerns are weighing on economic prospects, he said.

He told a news conference that the bank would pursue its asset purchase scheme, under which it spends up to €60 billion (S$95 billion) a month, and underlined that he could extend the quantitative easing beyond next September as part of efforts to boost euro zone growth and bring inflation nearer to its target of close to 2 per cent.

But in a direct call to euro zone governments to add their weight to a still tentative recovery in the region, he stressed that monetary policy "should not be the only game in town".

"Fiscal policies should support the economic recovery, while remaining in compliance with the EU's fiscal rules," he said.

The ECB decision to hold key interest rates at record lows was widely expected ahead of the meeting of its top policymakers in the Maltese capital of Valletta.

Most attention was on clues as to whether it was ready to expand or extend the bond-buying scheme launched in March.

Although some rate-setters have argued that the ECB should tweak the asset purchases now, most believe that quantitative easing needs to be given more time to work as its positive effects are just starting to pass through.

Dr Draghi emphasised that argument, saying that while risks to inflation and growth remained on the downside, deeper analysis was required before taking further action.

"In this context, the degree of monetary policy accommodation will need to be re-examined at our December monetary policy meeting," he said.

Euro zone economic growth is slowing again, with even powerhouse Germany seeing a recent string of poor data, and one of the ECB's favoured gauges of inflation expectations - the five-year, five-year euro zone breakeven forward - has fallen to 1.7 per cent from 1.85 per cent in July.

Lending surveys have continued to improve, however, allowing Dr Draghi to argue that QE is finding its way into the economy and does not urgently need to be adjusted.


A version of this article appeared in the print edition of The Straits Times on October 23, 2015, with the headline 'ECB keeps rates, liquidity unchanged'. Subscribe