ECB holds rates at record low as Draghi signals worst may be over
Print Edition
The European Central Bank left interest rates at a record low 0.5 percent yesterday and affirmed that they will remain there for some time and could yet fall further.
ECB President Mario Draghi hinted that policy would not be tightened until well into next year at the earliest, although the central bank will give no time horizon for when rates might move.
“Our monetary policy stance provides support to a gradual recovery in economic activity in the remaining part of the year and in 2014,” Draghi said in Frankfurt.
“The Governing Council confirms that it expects the key ECB rates to remain at present or lower levels for an extended period of time,” he said, affirming last month’s first stab at giving forward guidance on rates.
Stronger economic reports in the past few days support the ECB’s expectations of a pick-up later this year, though the policy options are complicated by market responses to the United States Federal Reserve’s plan to slow its stimulus program.
“Euro area economic activity should stabilize and recover at a slow pace. The risks surrounding the economic outlook continue to be on the downside,” Draghi said. “Recent developments in global and financial market conditions and the related uncertainties may have the potential to negatively affect economic conditions.”
The ECB reacted last month to market turmoil sparked by the Fed’s exit plan by breaking with precedent and offering forward guidance on rates.
Individual policymakers’ interpretations of that guidance over the last month have blurred the message, however, with Bundesbank chief Jens Weidmann insisting the ECB had not “tied itself to the mast,” while fellow German policymaker Joerg Asmussen said the guidance was good for “beyond” 12 months.
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