ECB Keep Rates On Hold As Europe Eyes Recovery
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The European Central Bank on Thursday voted to leave borrowing costs in the euro area unchanged at 0.5 percent, while ECB chief Mario Draghi suggested that interest rates could fall further from their current record lows should the economic outlook for the eurozone deteriorate.
Speaking at a press conference after the policy meeting, Draghi hinted that the ECB’s policy would not be tightened until well into next year at the earliest, unless market data improves significantly.
The European Central Bank on Thursday voted to leave borrowing costs in the euro area unchanged at 0.5 percent, while ECB chief Mario Draghi suggested that interest rates could fall further from their current record lows should the economic outlook for the eurozone deteriorate.
Speaking at a press conference after the policy meeting, Draghi hinted that the ECB’s policy would not be tightened until well into next year at the earliest, unless market data improves significantly.
“Our monetary policy stance … provides support to a gradual recovery in economic activity in the remaining part of the year and in 2014,” he said, adding that interest rates will likely remain at current record-low levels, or go even lower, for “an extended period”.
The ECB has cut its key interest rate four times since Draghi become president in 2011. In May, the ECB lowered its main refinancing rate further by a quarter-point to a record low of 0.5 percent. It has also cut the rate it pays banks for deposits to zero — a push for them to lend rather than hoard money.
Draghi vowed last year to do “whatever it takes” to keep the eurozone together, a resolve that has help to stem the eurozone’s decline but has so far been insufficient to push the region into growth again.
Yesterday, Draghi appeared confident that the eurozone is stabilising, citing stronger exports from peripheral eurozone countries like Spain and Italy and lower market interest rates for government bonds.
On Wednesday, data from Eurostat, the EU’s official statistical office, also showed that the June jobless total in the eurozone fell, albeit modestly, by 24,000 to 19.3 million, for the first time in two years.
“The picture seems to be better from all angles than it was a year ago,” he said.
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Nevertheless, “the risks surrounding the economic outlook for the euro area continue to be on the downside,” he warned, pointing to uncertain global money and financial market conditions. These “may have the potential to negatively affect economic conditions,” Draghi said.
Also potentially harmful to the economic outlook was the possibility that domestic and global demand could turn out weaker than expected and if governments dragged their feet on much-needed economic reforms, he said.
But Draghi also stressed that the ECB is nowhere near a decision to withdraw its stimulus efforts and there is no “precise deadline”, unlike its U.S. counterpart which has already started planning for an exit of its bond-buying programme.
On Wednesday, the Fed said it would keep buying $85 billion in mortgage and Treasury securities per month in an effort to strengthen the economy.
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