ECB leaves key rates unchanged

The European Central Bank left its key interest rates unchanged as investors wait for President Mario Draghi to explain how officials intend to respond to a slump in oil prices that's depressing euro-area inflation.

The 25-member Governing Council, meeting in Frankfurt on Thursday, kept the main refinancing rate at 0.05 percent, the deposit rate at minus 0.3 percent and the marginal rate at 0.3 percent. Investors will monitor Draghi's words for hints that the ECB is gearing up for fresh stimulus. Oil's crash, amid a Chinese economic slowdown that's throwing international markets into turmoil, has raised concern that record-low rates and a 1.5 trillion-euro ($1.6 trillion) bondbuying program may not be enough bring inflation back to just under 2 percent from current levels near zero.

"Inflation is likely to dip back into negative territory over the next few months," Nick Kounis, head of macro research at ABN Amro Bank NV in Amsterdam, said before the decision. "The Governing Council hasn't been able to react decisively to events over recent months due to splits in opinion about whether action is necessary and/or what policy measures to take. So it seems likely that the ECB will need more time to assess, form a consensus and decide what to do."

The ECB president has shown a readiness to act if needed, saying in New York on Dec. 4 that "there cannot be any limit to how far we are willing to deploy our instruments" within the mandate. Those comments came a day after the central bank's last monetary-policy meeting, when a deposit-rate cut and an extension to the bond-buying program disappointed investors.

The ECB's account of that meeting published last week showed diverging opinions among officials about the right policy path. Some governors opposed all new stimulus, some wanted even more aggressive action, and some leaned toward a bigger cut in the deposit rate rather than more asset purchases.

The immediate problem is oil, with Brent crude down more than 25 percent this month to a 12-year low. That means the ECB's December forecasts that saw inflation accelerating to an average of 1.6 percent in 2017 are probably already out of date.

When the ECB made its projections, it assumed the cost of Brent would rise from an average $54 a barrel in 2015 to roughly $58 a barrel next year. Crude is currently trading at about $28 a barrel.