As expected, the ECB elected to leave its benchmark refinancing rate unchanged at 0.25% in February.
The deposit facility and marginal lending facility rates were also left unchanged at 0% and 0.75%, respectively.
Many are concerned about disinflation in the eurozone — the latest data released last week revealed an unexpected drop in year-on-year inflation to 0.7% — but cutting rates to combat it probably isn’t worthwhile.
“It is hard to make an argument for the decidedly marginal improvement that a 0.1-0.15 percentage point change would make,” says Lorcan Roche Kelly, a strategist at Agenda Research.
“It also would do very little to improve the one short-term problem the ECB is more likely to be worried about — liquidity.”
In his monthly press conference and Q&A with reporters following the release of the decision, ECB president Mario Draghi said the ECB was ready to take further measures if needed — indicating no new changes to policy today — and the euro took off.
Draghi was asked specifically about whether the ECB could cease to sterilize the bond purchases it makes under its SMP program. Draghi said it is one instrument they could use to ease liquidity conditions, but it was not discussed at this month’s governing council meeting.
When pressed about the inflation outlook, Draghi said low inflation over a prolonged period was a risk that could not be ignored, but he attributed the disinflation trend to low food and energy prices, and said he does not see deflation, citing stable inflation expectations. These comments gave the euro an additional lift.
Draghi also said most of the discussion at the governing council meeting was focused on the need for additional information before implementing further policy measures.
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