Euro­pean Cen­tral Bank holds in­ter­est rates steady as econ­omy ticks over

Tehran Times - - ECONOMY -

The Euro­pean Cen­tral Bank (ECB) left bench­mark in­ter­est rates un­changed on Thurs­day, with pol­i­cy­mak­ers likely to ar­gue the re­gional econ­omy is ro­bust enough to ab­sorb spare ca­pac­ity and gen­er­ate in­fla­tion.

In a sub­tle change to the bank›s guid­ance, the ECB an­nounced plans to end bond pur­chases at the end of year and keep in­ter­est rates at record low lev­els at least through next sum­mer.

The bank also con­firmed it will halve bond pur­chases to 15 bil­lion eu­ros ($17.4 bil­lion) per month from Oc­to­ber.

With in­fla­tion re­bound­ing and eco­nomic growth lev­el­ing-off at a rel­a­tively sta­ble pace, the ECB has been grad­u­ally re­mov­ing cri­sis-fight­ing stim­u­lus for months. The scal­ing back of such mea­sures come de­spite risks to Europe›s econ­omy, rang­ing from global pro­tec­tion­ism to emerg­ing mar­ket tur­moil.

None­the­less, ECB Pres­i­dent Mario Draghi con­firmed the bank will stick to its cur­rent mon­e­tary pol­icy, with Europe›s eco­nomic growth run now into its sixth con­sec­u­tive year.

«When does a cen­tral banker know that he (or she) has done an im­mac­u­late job? When QE (quan­ti­ta­tive eas­ing) is brought to an end and fi­nan­cial mar­kets could hardly care less,» Carsten Brzeski, an ECB watcher at ING Diba, told CNBC via email on Thurs­day.

«Ac­cord­ing to this def­i­ni­tion, the ECB should be ex­tremely sat­is­fied with the out­come of to­day›s meet­ing,» he added.

ECB Pres­i­dent Mario Draghi re­acts as he de­liv­ers a speech dur­ing a meet­ing of the Com­mit­tee on eco­nomic and mon­e­tary af­fairs (ECON) at the Euro­pean Par­lia­ment, in Brus­sels, on May 29, 2017.

Mar­ket par­tic­i­pants are likely to closely mon­i­tor Draghi›s press con­fer­ence at 1:45 p.m. Lon­don time (8:45 a.m. ET) for fur­ther clues, but the ECB chief is un­likely to be will­ing to give away too many de­tails Thurs­day af­ter­noon.

Cri­sis-era stim­u­lus

Over the past four years, the ECB has pur­chased more than 2.5 tril­lion eu­ros of debt, de­press­ing bor­row­ing costs and stim­u­lat­ing eco­nomic growth in the 19-mem­ber cur­rency bloc af­ter a dou­ble-dip re­ces­sion.

But, so-called quan­ti­ta­tive eas­ing (QE) — which refers to the process of pump­ing cash through the fi­nan­cial sys­tem and real econ­omy, sup­port­ing growth and in­fla­tion — is now sched­uled to end in De­cem­ber.

The cen­tral bank›s plans to wind up QE are thought to sym­bol­ize the end of cri­sis-era poli­cies in the euro zone. The mea­sures are widely cred­ited to have helped re­vive the once stricken econ­omy.

Thurs­day›s de­ci­sion sees the ECB›s de­posit rate — cur­rently its pri­mary in­ter­est rate tool — re­main un­changed at -0.4 per­cent, while the main re­fi­nanc­ing rate was held steady at 0 per­cent.

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