Eurozone: ECB holds rates, but hints that further cuts could come
April 21, 2016
After announcing an unexpected slew of policy measures to fight low inflation and weak economic activity in March, the European Central Bank (ECB) decided to keep the main interest rates unchanged at its 21 April policy meeting. As a result, the refinancing rate, the marginal lending rate and the deposit facility rate remain at 0.00%, 0.25% and minus 0.40%, respectively. The ECB also maintained its asset purchases program at EUR 80 billion a month.
In the accompanying press conference, ECB President Mario Draghi stressed the importance of maintaining a degree of monetary accommodation to support the Eurozone’s economy and accelerate the return of inflation to the ECB’s target of below, but close to, 2.0%. Draghi added that financing conditions in the Eurozone have improved since last month’s meeting and that pass-through of stimulus measures is strengthening, although global economic uncertainties persist. The ECB still sees risks to the bloc’s growth outlook tilted to the downside, chiefly due to external and geopolitical uncertainties.
Looking forward, the ECB kept the door open for additional easing measures. Draghi emphasized that the ECB expects interest rates to “remain at present or lower levels for an extended period of time.” In addition, the Bank reaffirmed that it would do whatever it takes to bring inflation toward its target by using, “all the instruments available within its mandate.” In June, the ECB will begin corporate-bond purchases and a fresh set of targeted long-term refinancing operations (TLTROs).
Following last month’s announcement of a combination of rate cuts, expansion of the QE program and a new refinancing scheme for banks, criticism over the effectiveness of the ECB’s monetary policy has emerged. Analysts are skeptical about whether the stimulus package will have the desired results and are wondering if monetary policy has reached its limits. Draghi has refuted this criticism and argues that the ECB’s policies just need time to deliver results.