ECB warns markets not to expect a hike before 2020 as it announces fresh stimulus for ailing European economy

  • The European Central Bank on Thursday said it would not raise interest rates in the eurozone before 2020, confirming what many in the markets already expected.
  • This cautious outlook comes amid a Europe-wide economic slowdown which in recent months has seen Italy fall into recession, and German growth slow to practically zero.
  • The central bank also announced the creation of fresh stimulus in the form of a series of so-called targeted longer-term refinancing operations, better known as TLTROs.

The European Central Bank on Thursday said it would not raise interest rates in the eurozone before 2020, reflecting increased uncertainty over the future of the European economy, and a continent-wide slowdown in growth.

“The Governing Council now expects the key ECB interest rates to remain at their present levels at least through the end of 2019,” the central bank said in a statement released alongside its latest monetary-policy decisions.

It left all of its base interest rates unchanged, meaning a base deposit rate of -0.4% and a refinancing rate of 0%.

“The persistence of uncertainties related to geopolitical factors, the threat of protectionism and vulnerabilities in emerging markets appears to be leaving marks on economic sentiment,” ECB President Mario Draghi told journalists.

“The risks surrounding the euro area growth outlook are still tilted to the downside.”

Draghi’s comments and the ECB’s cautious outlook come amid a Europe-wide economic slowdown which in recent months has seen Italy fall into recession, and German growth slow to practically zero.

Alongside the decision, the central bank also announced fresh stimulus for the continent’s economic through a series of so-called targeted longer-term refinancing operations, better known as TLTROs.“A new series of quarterly targeted longer term refinancing operations will be launched, starting in September 2019 and ending in March 2021, each with a maturity of two years,” the ECB said.

“These new operations will help to preserve favourable bank lending conditions and the smooth transmission of monetary policy.”

TLTROs effectively encourage lenders to lend money to the real economy by providing them the option to get cash back from the ECB rather than pay interest on it as they would normally have to. Banks are paid back at the ECB’s -0.4% deposit rate.

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