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ECB stresses need for more stimulus after holding rates

International Business
Fri, 22 Jul 2016

Frankfurt: The European Central Bank (ECB) kept interest rates unchanged yesterday but left the door open to more policy stimulus, highlighting “great” uncertainty and abundant risks to the economic outlook.

Signalling a readiness to act, ECB president Mario Draghi argued that Britain’s decision to leave the European Union and weak emerging market growth both dampen the euro zone’s own outlook, leaving the balance of risks tilted firmly to the downside and possibly requiring action.

But Draghi also noted that growth and inflation were both moving along the path projected in June so more evidence, including fresh staff projections in September, were needed before any decision.

“If warranted to achieve its objective, the governing council will act by using all the instruments available within its mandate,” Draghi said. “So I would stress readiness, willingness and ability to do so.”

The balanced comments give the ECB time until its September meeting to weigh the economic costs of Brexit without fuelling excessive market expectations, potentially leading to disappointment, even if it does decide to act.

“All in all, today’s meeting was one that will quickly disappear from memories,” ING economist Carsten Brzeski said. “More action in September is possible but not yet a given.”

Keeping its deposit rate at minus 0.4 per cent, the bank reaffirmed its guidance to keep rates at current or lower levels for an extended period and beyond the scope of its asset purchase programme. It also repeated that its 80 billion euro ($88bn) per month asset-buying programme would run until March 2017 until it sees an upward adjustment of inflation towards its target.

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