Home Business ECB keeps rates unchanged as Draghi waves farewell to Frankfurt

ECB keeps rates unchanged as Draghi waves farewell to Frankfurt

FRANKFURT AM MAIN, GERMANY – SEPTEMBER 12: Mario Draghi, President of the European Central Bank, arrives to speak to the media following a meeting of the ECB governing board on September 12, 2019 in Frankfurt am Main, Germany.

Sean Gallup | Getty Images News | Getty Images

The European Central Bank (ECB) kept rates unchanged on Thursday – in what marks Mario Draghi’s last monetary policy meeting at the bank.

The central bank also kept its forward guidance unchanged, suggesting that the main interest rates will remain at their current or lower levels until there’s strong evidence of a pick up in prices. The euro traded fairly flat, at $1.11 against the dollar.

“Incoming economic data continue to point to moderate, but positive growth in the second half of this year,” Mario Draghi told reporters Thursday afternoon. He explained that weakness in international trade was denting manufacturing activity in the euro area as well as business investment.

The ECB expects a gross domestic product rate of 1.1% this year and 1.2% in 2020. It also forecasts a headline inflation of 1.2% and 1% for 2019 and 2020, respectively. The ECB’s mandate is to keep inflation “below but close to 2%”.

“A cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis confirmed that an ample degree of monetary accommodation is still necessary,” Draghi said Thursday.

The euro zone is seeing lower growth rates on the back of global trade tensions, a weaker manufacturing sector, and other economic uncertainties, such as Brexit.

In this context, the Frankfurt-based central bank had announced last month a massive stimulus package to boost the euro area. This included a 10 basis point cut to the deposit rate, new lending conditions to commercial banks as well as a second round of quantitative easing. The current ECB deposit rate is -0.5%, the lowest on record.

The decision to restart purchasing government bonds sparked some division within the central bank. Minutes from the meeting revealed that some of Draghi’s colleagues were not on board with the decision.

Draghi, who’s set to leave the European Central Bank after eight years next week, told CNBC’s Annette Weisbach that he is not worried this division will hurt his legacy.

“Frankly the answer is no. We have discussions, everybody has discussions; all jurisdictions have disagreements when monetary policy decisions come to be discussed and these disagreements are often made public, often they are not. So think it’s not being the first time. I have taken this as part and parcel of the ongoing debate and discussions.”

The ECB repeated Thursday that the second round of QE will start on November 1 at a monthly pace of 20 billion euros ($22.3 billion) per month.

“The Governing Council expects them to run for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it starts raising the key ECB interest rates,” the bank said in a statement.


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