The European Central Bank (ECB) kept its policy unchanged as expected yesterday, announcing only a nuanced change in its guidance to remain on track for ending bond buys this year and keeping record low interest rates at least through next summer.
With inflation rebounding and growth levelling off at a reasonable pace, the ECB has been removing stimulus in modest steps. It is likely to continue moving by the smallest possible increments, fearing anything bigger might set off market turbulence and unravel years of work.
In a well-telegraphed move, the ECB said it will halve bond purchases to €15 billion (S$23.9 billion) a month from October, firming up a previous guidance that it "anticipates" such a move. But it still expects to end its €2.6 trillion asset purchase scheme by the end of the year, suggesting that a formal decision on ending quantitative easing will come later.
The bank kept unchanged its guidance on interest rates, a more closely watched item as it sets the course for monetary policy for a year, an unusually long horizon for a central bank.
"The Governing Council expects the key ECB interest rates to remain at their present levels at least through the summer of 2019, and in any case for as long as necessary," it said, repeating its guidance.
With yesterday's decision, the ECB's rate on bank overnight deposits, which is currently its primary interest rate tool, remains at minus 0.4 per cent.
The main refinancing rate, which determines the cost of credit in the economy, remained unchanged at 0 per cent while the rate on the marginal lending facility - the emergency overnight borrowing rate for banks - remains at 0.25 per cent.