ECB Maintains Status Quo As Draghi Bids Adieu

The European Central Bank on Thursday left its key interest rates, forward guidance, and stimulus measures unchanged as expected in the final policy session chaired by President Mario Draghi.

The main refinancing rate was retained at its record low 0 percent and the deposit rate at -0.50 percent after the latest Governing Council meeting. The latter was slashed by 10 basis points in September. The marginal lending facility rate was kept unchanged at 0.25 percent.

The bank also retained its forward guidance on both interest rates and asset purchases.

Interest rates are expected to remain “to remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close” to ECB’s aim of “below, but close to 2 percent” and ” such convergence has been consistently reflected in underlying inflation dynamics.”

In September, the ECB announced a restart of its asset purchase programme at a monthly pace of EUR 20 billion from November 1. The bank reiterated this on Thursday.

“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 ECB reiterated. Draghi, the savior of euro known for his buzzwords “whatever it takes”, leaves behind a legacy marred by controversy.

The latest stimulus package failed to get the full backing of the Governing Council and the policy-making body has never seen such a major divide in views.

The Italian economist is set to handover the reins of the ECB to former IMF Managing Director Christine Lagarde on October 31. The Italian economist’s departure comes at a time when growth in the 19-nation euro area is sagging and inflation is far away from the ECB’s goal of “below, but close to 2 percent”.

And it is this worrying economic picture that prompted Draghi to unveil a host of stimulus measures in September, the effectiveness of which are increasingly being doubted. The euro area economy is facing a prolonged sag than was expected earlier, he told lawmakers.

Under the former finance minister Lagarde, it is widely expected that there is likely to be a change in strategy in ECB monetary policy.

Eurozone interest rates were raised last in July 2011, by 25 basis points, and Draghi is set to be the only ECB chief thus far who did not raise interest rates.

Draghi’s decisions also raised several eyebrows as he was bold enough to undertake several unconventional measures at the ECB, mainly asset purchases and negative interest rates, which were inconceivable in the euro area years ago.

The material has been provided by InstaForex Company – www.instaforex.com