The governing council of The European Central Bank (ECB) decided that the interest rates on the main refinancing operations and the marginal lending and deposit facilities will remain unchanged.
The ECB expects the interest rates to stay at at 0.00 percent, 0.25 percent, and -0.40 percent, respectively, at least through the summer of 2019.
The interest rates are expected to remain at their present levels for as long as necessary to ensure the continued sustained convergence of inflation levels that are below, but close to 2 percent over the medium term, the ECB revealed.
Regarding non-standard monetary policy measures, the governing council will continue to make net purchases under the asset purchase programme (APP) at the new monthly pace of €15 billion until the end of December 2018.
The governing council anticipates that incoming data confirming the medium-term inflation outlook will cause net purchases to end.
The main objective of the ECB is to maintain price stability in the euro area and, to this end, it uses interest rates to affect financing conditions in the economy.
The rate on the deposit facility and the rate on the marginal lending facility define a corridor for the overnight interest rate at which banks lend to each other.
The deposit facility rate acts as the floor of this corridor and the marginal lending facility acts as the ceiling.
In the first phase of the financial crisis, the primary aim of the ECB’s non-standard measures was to provide liquidity to banks and to keep financial markets functioning
Antoine Lesné, head of EMEA, strategy and research for SPDR exchange traded funds at State Street, said: “As universally expected, the ECB left rates unchanged. The potential downside risks to growth, as a result of trade wars and mounting geo-political concerns, have been noted alongside Italy’s spread volatility.”
“Inflation remains on track and given the risk does not seem to have spread to other peripheral countries, we were not expecting the ECB to change course for Italy. As a result, impact on rates is expected to be muted and the euro may continue to show weakness versus the greenback for now.”
Michael Metcalfe, global head of macro strategy at State Street Global Markets, commented: “There are few signs that the ECB will reinstate the Outright Monetary Transactions (OMT) or a similar policy tool that would allow them to quell a dislocation in fixed income markets without a country first being part of a full bailout programme.”
“Nor is there any explicit guidance on potential changes to the ECBs reinvestment policy. Whatever it takes, is on the brink of becoming whatever it took.”
Barry McAndrew, fixed income senior portfolio manager at State Street Global Advisors, Europe Middle East and Africa (EMEA), said: “Having previously committed to an orderly wind down of Quantitative Easing and no action on policy rates until after the summer of 2019, the ECB is currently on autopilot.”
“Although inflation expectations are still below target, the ECB is seeing small pockets of wage pressure, giving them some confidence that policy should be less accommodative. However, any further messaging on the likely pace of this removal is being kept for next year.”
Nikki Howes, investment associate at Heartwood Investment Management, said: “This week’s ECB meeting was a largely uneventful affair, keeping interest rates on hold and asset purchases to continue at the current monthly pace of €15 billion until the end of December 2018.”
“However, a glance into the future of the ECB reveals a less predictable picture. Mario Draghi, completes his eight-year reign in November 2019, and his replacement will shape the future path of monetary policy in Europe.”
