The European Central Bank kept its money taps wide open on Thursday but dropped a reference to possible interest rate cuts, an unexpectedly hawkish move as euro zone growth accelerates.
The euro zone economy has been on its best run since the global financial crisis nearly a decade ago but the ECB was expected to take a more cautious stance as the inflation rebound has yet to show a convincing upward trend.
“The governing council expects the key ECB interest rates to remain at their present levels for an extended period of time, and well past the horizon of the net asset purchases,” the bank said, removing a long-standing reference to lower rates.
It kept its easy money policy unchanged as widely expected, however, including its €2.3 trillion euro bond-buying programme and sub-zero interest rates, despite resistance from cash-rich Germany.
Stimulus
Sources have said the ECB is likely to nudge up its growth forecasts but trim some of its inflation projections, indicating that its stimulus is working but remains needed. That mixed outlook had been expected to underpin the case for keeping the ECB’s easy money policy in place, including the commitment to cut rates further if necessary.
The ECB also maintained its pledge to increase its asset purchases if necessary. ECB president Mario Draghi is also expected to declare risks to growth "balanced", giving up a long-established more pessimistic stance, a move that is seen as a nuanced but definite step towards policy normalisation after years of stimulus.
The euro was trading broadly unchanged against the dollar, not far from a seven-month high of $1.1285 hit earlier this month.
With Thursday’s decision, the ECB’s deposit rate, its key policy tool, remains at -0.4 per cent. Its monthly asset purchases will continue to total €60 billion euros a month and to run until at least December.
– Reuters
