Risks to the currency bloc's economy remain skewed to the downside,
ECB President Mario Draghi said after interest rates were held at
0.25 percent, and inflation would be low for a protracted period.
"Developments in global money and financial market conditions and
related uncertainties, notably in the emerging- market economies,
may have the potential to negatively affect economic conditions,"
Draghi told a news conference.
"The reason for today's decision not to act has really to do with
the complexity of the situation ... and the need to acquire more
information," he said.
Draghi immediately put markets on alert for possible ECB action in
March, when he said the Governing Council would have more
information at its disposal, including new forecasts from the bank's
staff that will extend into 2016 for the first time.
If emerging-market turmoil persists, a move is more likely next
month. A downgrade in the ECB's staff inflation estimate — already
at just 1.2 percent for 2014 — could prompt action.
"On balance, we think President Draghi signaled that the Council has
effectively called 'time-out' on the rate cut debate, and decided to
wait one month before deciding whether to take further action," said
RBS economist Richard Barwell.
"On that basis, we too will postpone our rate-cut call from February
to March, not cancel it altogether."
A sharp drop in euro zone inflation to 0.7 percent in January, well
below the ECB's target of just under 2 percent, would have focused
policymakers' minds, particularly since emerging turmoil could put
further downward pressure on prices.
ECB policymakers are already thinking about what action to take, if
they see the need. The discussion at Thursday's meeting focused on
what could bring about a materializing of the downside risks that
would prompt action, Draghi said.
Markets scaled back their expectations of future ECB easing as
Draghi spoke, with the euro rising to $1.36 from $1.3493 before the
news conference started. German Bund yields and euro zone money
market rates also rose.
Draghi fended off suggestions that deflation in the euro zone was a
grave threat, adding that inflation expectations remained firmly
anchored. If that changes, a significant policy response would be
"We are monitoring developments carefully and are ready to consider
all available instruments," he said, adding that the bank was ready
to "take further decisive action if required."
Money market traders had expected no change in rates, nor any other
policy steps, a Reuters poll taken on Monday showed.
The Bank of England faces a different problem — trying to convince
markets that resurgent growth will not require an early interest
rate rise. It too left policy on hold on Thursday.
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The ECB is wary of inflation getting stuck in what Draghi has called
a "danger zone" below 1 percent and vowed again to keep rates at
present or lower levels for an "extended period".
An emerging-market selloff risks forcing the euro higher, which
would put more downward pressure on prices.
Asked about coordinating monetary policy action to address
emerging-market turmoil, Draghi said this could be difficult as
central banks all have their own mandates. But it could be
discussed, so long as mandates were not compromised, he said.
For now, economic recovery is intact, though still in its infancy.
The euro zone's private sector logged its busiest month in 2-1/2
years in January, surveys showed on Wednesday.
"We must be extremely cautious about this recovery. It is still
fragile and it is still uneven," Draghi said.
A month ago, he set out markers for further ECB action, pledging the
central bank would take action if its inflation outlook worsened or
money markets saw "unwarranted" tightening.
But the ECB does not have a lot of ammunition left to boost
inflation. There might be only one more rate cut in its arsenal and
even that would be smaller than the usual quarter point.
Short-term interest rate volatility has been another headache for
To prevent spikes in market rates, the bank could choose to end the
offsetting government bond purchases made when the euro debt crisis
was raging, which would add about 175 billion euros ($236.82
billion) to the money markets.
Draghi said that was one option under consideration, but it was not
discussed in detail at Thursday's meeting, when policymakers had a
"broad discussion" about all instruments.
"No action in Frankfurt today, but the door to further steps remains
wide open as headline inflation stays weak," said Berenberg
economist Christian Schulz. "The March meeting in particular, when
the ECB's inflation forecast for 2016 will be published, could be
($1 = 0.7390 euros)
(Additional reporting by Paul Carrel and
Eva Taylor. writing by Mike Peacock; editing by Jeremy Gaunt, Larry
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