The European Central Bank left monetary policy unchanged on Thursday afternoon, when the Bank announced the outcome of the first meeting of its governing council since Britain voted to leave the European Union.
The bank left all its main rates unchanged, with its key refinancing rate remaining at 0%, and the key deposit rate left at -0.4%. The Bank said that it expects “interest rates to remain at present or lower levels for an extended period of time.”
Europe’s central bank also confirmed that its programme of corporate bond buying will continue until March next year at least.
“Regarding non-standard monetary policy measures, the Governing Council confirms that the monthly asset purchases of €80 billion are intended to run until the end of March 2017, or beyond, if necessary, and in any case until it sees a sustained adjustment in the path of inflation consistent with its inflation aim,” a statement released alongside the decision said.
It would have been an enormous shock if either of those rates changed on Thursday, but markets in Europe and across the world will now be waiting with bated breath to hear what ECB president Mario Draghi says when he answers questions from journalists later this afternoon.
Draghi will speak in Frankfurt at 2:30 p.m. CET (1:30 p.m. BST; 8:30 a.m. ET) and his remarks will be the main focus for European investors and policymakers. As always, Draghi will “comment on the considerations” underlying the council’s decision to leave rates where they are, but what is likely to be most keenly watched are his comments on the economic impact of Brexit on the eurozone. Markets will also be looking to see what Draghi says about the ongoing banking crisis in Italy.
There are widespread fears that Britain’s vote to leave the EU will provide a drag on the already fragile recovery of the Eurozone, and it is expected that as a result, the ECB may announce a cut to European growth forecasts at today’s press conference. Draghi and governing council vice president Vitor Constâncio should also provide some idea of how the ECB will try to mitigate any economic shocks provided to the eurozone by the Brexit vote. That could include hints about further stimulus in the form of another rate cut, or extra quantitative easing, and when that stimulus might come.
Commenting on the ECB’s meeting, Ana Thaker, a market economist with Phillip Capital, said:
“Draghi will want to reassure markets that the bank remains in a stable position to provide the necessary assistance to markets and are ready to act when required. Whilst markets have previously believed and taken comfort in Draghi’s words, it is increasingly apparent that the ECB is running out of policy measures to tackle stagnant growth in the area; it will be interesting to see if they keep faith in him today.
Some members of the ECB have attempted to take the spotlight off of July’s meeting, with Luis Linde saying that the bank will not give an assessment of the economy until September, allowing for two months’ worth of post-Brexit data to be assessed.”
The euro was little moved against the dollar on the news of the hold, and five minutes after the decision was up by 0.04% on the day at $1.1016, barely moved from before the decision, when it was up 0.02%. Here’s the chart: