The European Central Bank left its interest rates unchanged on Thursday as policymakers wait to measure the impact of the December stimulus measures as a further slowdown in the emerging markets and the free fall of oil prices have complicated the picture.
The 25-member Governing Council, which met in Frankfurt, left the main refinancing rate unchanged at a record low 0.05 percent.
After a 10 basis points cut in December, the deposit rate was kept at a record low -0.30 percent. The marginal lending rate was retained at 0.30 percent.
The decision was in line with economists’ expectation.
ECB President Mario Draghi is set to hold his customary press conference at 8.30 am ET, where his words will be keenly watched for hints of more stimulus measures in March or June.
“The President is likely to voice serious concerns over recent financial market turmoil, having warned previously of external risks to the euro-zone even when fears over China were easing,” Capital Economics economist Jennifer McKeown said.
“He might hint that the balance of opinion on the Governing Council is moving in favor of the doves who wanted to expand the QE programme more decisively last month.”
Till December, the ECB had maintained rates unchanged for ten consecutive sessions after reducing them by 10 basis points in September 2014.
Chasing its ‘below, but close to 2 percent’ inflation target is becoming increasingly difficult in the backdrop of tumbling oil prices and the economic slowdown and yuan weakness in China, witnessed in the first few weeks of this year.
Eurozone inflation is nowhere near the ECB’s target, coming in just 0.2 percent in December. The figure has been below the bank’s aim since early 2013.
That said, ECB policymakers may prefer to look through the fall in oil price and its effect on inflation for now, given that “the subdued recovery” in the euro area is rather intact.
Nevertheless, the falling oil price is a top concern for ECB policymakers. Rate-setter Ewald Nowotny said on Wednesday that the bank’s inflation target is difficult to achieve amid the tumbling crude price.
In December, the ECB lowered the inflation outlook for this year to 1 percent from 1.1 percent. The projection for the next year was cut to 1.6 percent from 1.7 percent.
During the December meeting, the ECB also decided to extend its EUR 1.1 trillion asset purchase programme until March 2017, or beyond, if necessary.
Markets were not expecting any stimulus announcements this month as it will be too early for fresh moves after the December measures, which were less than what markets hoped. However, expectations that the ECB will unleash another round of stimulus later in the year are gaining ground.
Many economists are looking forward to the March meeting for some ECB stimulus action, when the ECB Staff will release its latest set of macroeconomic forecasts. Some analysts have predicted stimulus moves for June.
The minutes of the December 3 meeting released last week, showed that some policymakers favored a deeper cut in the deposit rate and an extension of asset purchases beyond March 2017 and expanding the monthly size from EUR 60 billion, or of frontloading them.
However, the minutes said there was broad agreement in the policy-making body that such measures would not be warranted at this juncture, “while a reassessment could be made in future”.
“We see it [ECB] increasing the pace of asset purchases from EUR 60 billion to EUR 80 billion per month and perhaps cutting the deposit rate again too,” Capital Economics’ McKeown said.
“For now, we see the most likely timing as Q2, but it might move as soon as its next meeting in March if market conditions and inflation expectations fail to recover.”
The material has been provided by InstaForex Company – www.instaforex.com