ECB stays on hold in June and effectively rules out further rate cuts

LONDON — The European Central Bank released its latest monetary policy decisions on Thursday afternoon, following the June meeting of its governing council.

Monetary policy stayed on hold, with the ECB maintaining a deposit rate of -0.4% for banks, a base interest rate of 0.0%, and a quantitative easing (QE) program of up to €60 billion per month.

The decision comes as ECB President Mario Draghi and his fellow governing council members are yet to be convinced that the recent rebound in inflation in the eurozone is durable because wage growth remains sluggish.

While policy did not change, the ECB made a crucial change to the statement accompanying the decision, changing a sentence in the first paragraph from:

“The Governing Council expects the key ECB interest rates to remain at their present or lower levels for an extended period of time,”


“The Governing Council expects the key ECB interest rates to remain at their present levels for an extended period of time.”

Removing the words “or lower” from the statement effectively means that the ECB is now ruling out taking interest rates further into negative territory in the foreseeable future, removing its easing bias to monetary policy.

“This is a small, but significant, change in the bias of interest rates setting,” Pantheon Macroeconomics’ Chief Eurozone Economist Claus Vistesen writes in an emailed note.

Draghi will take questions from journalists at 1.30 p.m. BST (8.30 a.m. ET) in the Estonian capital Tallinn at the bank’s annual conference away from its Frankfurt HQ. He will likely address the monetary policy decisions, as well as Wednesday’s sudden takeover of Banco Popular by fellow Spanish lender Santander as part of an ECB-backed plan to prevent Popular from collapsing.

The euro dropped sharply on the announcement, falling from 1.1244 on the dollar to $US1.1225, before climbing a little almost immediately, as the chart below shows:

Screen Shot 2017 06 08 at 12.53.56

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