ECB holds steady but warns of turbulence
THE European Central Bank kept its interest rates at record lows and held fire on more economic stimulus, but warned of “uncertainties” ahead for the eurozone over the Brexit vote.
Describing the ECB’s current ultra-loose monetary policy as “effective”, bank chief Mario Draghi said policymakers stood ready to take action if needed to push up stubbornly low inflation and reinvigorate growth.
In the meantime, Mr Draghi asked for patience while the full impact of current policies unfolded.
Mr Draghi also announced new economic forecasts after a meeting of the bank’s governing council in Frankfurt last week, slightly raising this year’s growth forecast to 1.7 percent while lowering expectations for 2017 and 2018 to 1.6pc.
“The economic recovery in the euro area is expected to be dampened by still subdued foreign demand, partly related to the uncertainties following Brexit ... and a sluggish pace of implementation of structural reforms,” Mr Draghi said.
The eurozone economy has held up well against the initial shock of Britain’s June vote to quit the EU, early data showed.
But since Britain has yet to trigger the process to extricate itself from the bloc, analysts warn that it could take time for the economic fallout to make itself felt.
The bank’s governing body voted to keep the benchmark refinancing rate at 0pc, while the rate on the lending facility remains at 0.25pc and the bank deposit rate at -0.4pc.
A negative deposit rate means banks have to pay to park excess cash at the ECB, an unusual state of play that has squeezed banks’ profits and sparked fears lenders could pass the charges on to customers.
The council expects the rates to remain at current, or lower, levels for an extended period of time.
The rates decision was widely expected by analysts who predicted the ECB would opt to wait for more conclusive data on Brexit before embarking on any drastic policy changes.
The ECB also refrained from making any tweaks to its massive asset-buying program to encourage lending and investment, which has seen it purchase over 1 trillion euros in government and corporate bonds over the past 18 months.
“Interest rates have to stay low for the economic recovery to proceed, for the economic recovery to firm up, which in the end will have a positive effect on banks’ balance sheets as well,” Mr Dragi said. –
President of European Central Bank Mario Draghi (left) and Chair of the Economic and Monetary affairs Committee of European Parliament Roberto Gualtieri talking at an Informal Meeting of Ministers for Economic and Financial Affairs in Bratislava, Slovakia, on September 9.