ECB holds steady but warns of tur­bu­lence

The Myanmar Times - - Business | International -

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. –

Photo: AFP

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.

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