ECB keeps rates low despite better growth

FRANKFURT • The European Central Bank (ECB) left its ultra-easy monetary policy stance unchanged as expected yesterday, keeping rates at record lows and even leaving the door open to more asset buys if the outlook worsens.

The ECB maintained its deposit rate at minus 0.4 per cent, kept the main refinancing rate at zero and retained its commitment to buy €60 billion (S$94.6 billion) of debt a month until at least the end of the year.

"If the outlook becomes less favourable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, the Governing Council stands ready to increase the programme in terms of size and/or duration," it said.

Having raised the prospect of policy tightening last month, yesterday's inaction was likely to signal that any policy tweaks would come only slowly and gradually, likely taking years to wean the European economy off monetary support.

Still, with the euro zone economy now growing for the 17th straight quarter, its best run since before the global financial crisis, the ECB can at least contemplate easing off the accelerator, preserving some its remaining firepower after printing nearly €2 trillion to jump-start growth.

ECB President Mario Draghi said that while the ongoing economic expansion provides confidence that inflation will gradually head to the 2 per cent aim, it has yet to translate into stronger inflation dynamics. "Therefore, 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," he said.

The euro fell to a two-day low after the ECB decision, hitting US$1.14855, down 0.3 per cent, from a high of US$1.15320 before the rate decision.

The government bond yields across the bloc also slipped.

The yield on Germany's 10-year government bond , the benchmark for the region, fell over 2 basis points (bps) after the statement was released and was lower on the day at 0.53 per cent.

Low-rated Italian and Spanish 10-year government bond yields were down 4-5 bps on the day.

On stock markets, the pan-European Stoxx 600 Index extended gain slightly and was last up 0.2 per cent, while euro zone banks gave back their earlier gains to trade flat, before edging back up to 0.1 per cent higher on the day.


A version of this article appeared in the print edition of The Straits Times on July 21, 2017, with the headline 'ECB keeps rates low despite better growth'. Print Edition | Subscribe