ECB holds rates, keeps
March date for ending asset buys
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[September 08, 2016]
By Balazs Koranyi and Francesco Canepa
FRANKFURT (Reuters) - The European
Central Bank kept its already loose policy stance unchanged as
expected on Thursday, holding rates at record lows and promising to
keep its 80 billion euro monthly asset buys going at least until
Keeping rates deep in negative territory and printing money at a
record pace, the ECB is hoping to revive inflation and growth in a
region weighed down by nearly a decade of economic malaise and
But its untested and often controversial unconventional measures are
still seen as insufficient, so the ECB is widely expected to provide
even more stimulus before the end of the year as governments have
for years failed to do their part to lift growth.
The ECB kept its deposit rate at -0.4 percent, charging banks for
parking cash overnight, and held the main refinancing rate, which
determines the cost of credit in the economy, unchanged at 0.00
It also maintained the March end date for its asset buys with the
caveat that the scheme could be extended if inflation is not
rebounding. Though some had already expected a six month extension
on Thursday, such a move is fully priced in by the end of the year.
Repeating its usual forward guidance, the ECB added that rates would
stay at their current or lower levels for an extended period, a
stance intended to reassure investors that any reversal in rates was
many years away.
Attention now turns to ECB President Mario Draghi's 1230 GMT news
conference, where he will unveil fresh economic forecasts and will
likely offer clues about the bank's future course.
Though growth and inflation remain anemic, the ECB needs to exercise
patience as it has already exhausted much of its firepower, leaving
it with tool that carry significant side effects.
Nonetheless, it is probably just a matter of months before it eases
policy further, acknowledging that inflation just isn't moving
higher, despite free credit to banks, record low interest rates and
money printing worth 1.2 trillion euros ($1.35 trillion) in the past
year and a half.
With unemployment hovering at 10 percent, governments holding back
on spending as they manage down record debt piles, and companies
producing far less than they can, growth cannot take off, putting a
lid on inflation.
Indeed, price growth, holding near zero, has undershot the ECB's 2
percent target for more than 3 years and will miss it for at least
another 2, a risk to the bank's credibility and the viability of
[to top of second column]
European Central Bank (ECB) President Mario Draghi waits to address
the European Parliament's Economic and Monetary Affairs Committee in
Brussels, Belgium, June 21, 2016. REUTERS/Francois Lenoir/File Photo
Fresh quarterly forecasts to be unveiled by Draghi could show a slightly lower
path for underlying inflation while recent research published by the ECB
suggested that long term inflation expectations are drifting lower, an
indication of waning confidence in the ECB's policies.
Market based inflation expectations are also back to lows hit after the Brexit
vote and most recent Germany data have also disappointed.
But even a simple extension of the 1.74 trillion asset purchase program, started
in March 2015, is not so easy as the ECB is running out of bonds to buy due to
its self-imposed constraints.
The choice is then between tweaking purchase rules or going for a bigger
Easiest options could include buying bonds yielding less than the bank's -0.4
percent deposit rate, extending the maturity range of eligible bonds to 30 years
from 20 years and buying an even bigger portion of certain bond issues.
Bigger changes could involve the purchase of new types of assets, like bank
bonds, non performing loans or in the extreme case, stocks.
Still, each of these changes would generate concern or even outright opposition
from the hawks and the growing camp of moderates on the Governing Council, who
worry about the unintended negative effects of the ECB's extraordinary stimulus.
($1 = 0.8891 euros)
(Editing by Jeremy Gaunt)
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