JAKARTA (TheInsiderStories) – The Governing Council of the European Central Bank (ECB) decided that the interest rate on the main operations, marginal lending facility and the deposit facility will remain unchanged at 0.00 percent, 0.25 percent and -0.40 percent respectively, said the board today (07/25).
The Governing Council expects the key ECB interest rates to remain at their present or lower levels at least through the first half of 2020. The Council also intends to continue reinvesting in full, the principal payments from maturing securities purchased under the asset purchase programme for an extended period of time past the date when it starts raising the key ECB interest rates.
And in any case for as long as necessary to maintain favorable liquidity conditions and an ample degree of monetary accommodation, said the ECB.
The Governing Council also underlined the need for a highly accommodative stance of monetary policy for a prolonged period of time, as inflation rates, both realised and projected, have been persistently below levels that are in line with its aim.
“Accordingly, if the medium-term inflation outlook continues to fall short of its aim, the Governing Council is determined to act, in line with its commitment to symmetry in the inflation aim. It therefore stands ready to adjust all of its instruments, as appropriate, to ensure that inflation moves towards its aim in a sustained manner,” said the Council.
On July 11, the ECB officials signaled at their June policy meeting that they will consider injecting fresh stimulus into the eurozone economy soon in light of weak inflation data and mounting global uncertainties.
The minutes suggest that ECB policymakers are preparing to act to support the region’ export-focused economy by cutting the bank’s key interest rate, currently set at minus 0.4 percent, or restarting its US$2.92 trillion bond-buying programs.
ECB’ President Mario Draghi emphatically opened the door to more stimulus in the following weeks. It said, “There was broad agreement that, in the light of the heightened uncertainty, which was likely to extend further into the future.”
“The governing council needed to be ready and prepared to ease the monetary policy stance further by adjusting all of its instruments,” the minutes said. Measures to be considered included rate cuts and fresh bond purchases,” the notes added.
Major central banks have shifted their focus toward interest-rate cuts in recent weeks amid lingering international trade tensions and a softening in key emerging markets such as China. United States (US) Federal Reserve Chairman Jerome Powell signaled that the central bank could cut interest rates as soon as this month.
With a trade war between the US and China hurting eurozone exporters and the Fed widely expected to cut its interest rate, the ECB is coming under pressure to ease its own policy again.
Previously, Draghi has suggested the eurozone economy would need to soften further before the bank would act. Since then, Draghi has hardened his tone, signaling that fresh stimulus is on the way unless the economic outlook improves. But it wasn’t clear if the rest of the rate-setting committee would support such a move.
The officials highlighted a downward shift in market expectations of future inflation rates, which have fallen “near the previous lows recorded on September 2016.” The ECB has previously used weakening inflation expectations to justify aggressive stimulus measures.
“Inflation was still projected to reach only 1.6 percent in 2021, which was seen to remain some distance away from the governing council’s inflation aim,” the minutes said. The ECB aims to keep inflation just below 2 percent over the medium term.
“It was hence considered important for the governing council to demonstrate its determination to act and to further prepare for adverse contingencies in the period ahead,” the minutes said.
The account also showed that the ECB was considering more strategic moves if inflation remained low and that it planned to emphasize that an overshoot, as well as an, undershoot of inflation would be tolerated.
by Linda Silaen, Email: email@example.com