ECB Drops Reference to Lower Rates, All Eyes on Draghi


Talking Points

As overwhelmingly expected, the European Central Bank made no changes Thursday to its interest rates or its asset-purchase program.

However, in a key change, it has dropped a reference to rates possibly being cut further in future.

All eyes turn now to ECB President Mario Draghi’s press conference at 1230 GMT to see whether there are any changes to the language of his opening statement.

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The European Central Bank made no changes to its monetary policy settings Thursday, keeping all its key interest rates and its asset-purchase program unchanged. However, in a key change, the ECB has dropped a reference to rates being potentially cut even further in the months ahead.

By contrast, it also said that its asset-purchase program could be continued beyond its current end date.

Now, the markets will be listening closely to ECB President Mario Draghi’s press conference at 1230 GMT, waiting for any changes to his opening statement that will point to a gradual withdrawal of monetary stimulus in the months ahead. Its staff economic forecasts will be scrutinised for any changes to their growth and inflation forecasts.

“The Governing Council expects the key ECB interest rates to remain at their present levels for an extended period of time, and well past the horizon of the net asset purchases, the central bank said. That was an important alteration to previous statements that have referred to rates remaining at their current or lower levels.

While Euro-Zone monetary policy remains highly stimulative, the change implies that the ECB could begin tapering its stimulus in due course as economic growth picks up and its inflation forecasts come down.

In response to the statement, the Euro fell sharply against the US Dollar.

Chart: EUR/USD Five-Minute Timeframe (Jun 8, 2017)

ECB Drops Reference to Lower Rates, All Eyes on Draghi

Chart by IG

Regarding non-standard monetary policy measures, the Governing Council confirms that the net asset purchases, at the current monthly pace of €60 billion, are intended to run until the end of December 2017, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim,” the ECB said.

The net purchases will be made alongside reinvestments of the principal payments from maturing securities purchased under the asset purchase program. If the outlook becomes less favorable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, the Governing Council stands ready to increase the program in terms of size and/or duration,” it added.

Written by Martin Essex, Analyst and Editor

To contact Martin, email him at martin.essex@ig.com

Follow Martin on Twitter @MartinSEssex

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