ECB leaves rates on hold as it affirms bond taper plan
Most analysts consider September 2019 to be earliest possible date for rate increase
FRANKFURT—The European Central Bank confirmed plans to gradually phase out easy money on Thursday but said it will probably keep rates steady through next summer, underscoring a growing policy divergence with the U.S. Federal Reserve.
In a policy statement Thursday, the ECB said it expects to phase out its 30 billion euro($35 billion) a month bond-buying program by December and switch its focus to interest rates. Its deposit rate was held Thursday at minus 0.4%, where it has been since March 2016.
In contrast, the Fed has been gradually increasing interest rates since the end of 2015 including twice this year, pushing its key rate to a range to 1.75% to 2%. It is expected to raise rates twice more this year.
Investors will now turn to ECB President Mario Draghi’s news conference, starting at 08:30 ET, for clues as to the bank’s next policy steps.
The region’s financial markets have been calm in recent weeks despite the ECB’s decision last month to end its bond purchases, known as quantitative easing or QE, at the end of this year. The purchases have been credited with restoring the region’s economy to health.
While that move reflects growing confidence in the recovery, ECB officials are closely monitoring recent signs of an economic slowdown as well as a series of external threats, ranging from rising oil prices to possible trade wars.
European Commission President Jean-Claude Juncker appeared to secure a reprieve for European businesses after a meeting with President Donald Trump on Wednesday, but any fresh escalation in the trade conflict could hurt Europe’s crucial auto industry.
Economic data published in the coming days are expected to underscore a widening gap between the U.S. and Eurozone economies, which grew at a similar pace last year. U.S. data on Friday are expected to show the world’s largest economy expanded more than 4% at an annualized pace during the second quarter.
That is probably more than double the pace of the eurozone economy, whose second-quarter growth figures will be published on Tuesday.
With the economy slowing, most analysts consider September 2019 to be the earliest possible date for a first ECB rate increase. Mr. Draghi will probably be pressed on that timing at Thursday’s press conference, but is likely to remain vague. Annual inflation was 2% in June, slightly above the ECB’s medium target of just below 2%.
But excluding volatile items like food, energy and tobacco, underlying inflation was just 0.9%, giving the ECB plenty of breathing room.