The Economy

ECB Leaves Rates Unchanged, Hints at Easing

Amid "pervasive uncertainty" over trade, "the ECB and the U.S. Federal Reserve appear to have given up on plans to tighten [monetary] policy."
Matthew HellerJune 6, 2019

The European Central Bank on Thursday pushed back the timing of its first post-crisis interest rate hike and its president hinted at more radical monetary stimulus if economic growth in the eurozone remains weak.

After meeting in Lithuania, the bank left its benchmark main refinancing rate unchanged at zero and its deposit rate at minus 0.4%. It also said it would keep rates at those record lows at least through the first half of 2020. It previously stated in March that rates would remain on hold until at least the end of this year.

The extension of the bank’s rate-hiking timeline sparked a rally in the euro. Market participants appeared to read it as pushing back against the possibility of a rate cut.

But at a news conference, ECB President Mario Draghi said policymakers had started to discuss options such as cutting interest rates or resuming a 2.6 trillion euro ($2.9 trillion) bond-buying program to stimulate the eurozone economy.

“Several members raised the possibility of further rate cuts. Other members raised the possibility of restarting the asset purchase program or further extensions in the forward guidance,” he said.

The ECB’s next policy vote is scheduled for June 6. “Draghi delivered a very cautious message, leaving open the possibility of easing monetary policy further if macro conditions do not improve in the coming months,” Antonio Garcia Pascual, an economist at Barclays, told the Financial Times.

According to Reuters, Draghi’s “unexpectedly dovish stance comes as a trade war between the United States and China overshadows the global economy and especially export-oriented eurozone countries such as Germany.”

“With pervasive uncertainty already denting trade, big central banks like the ECB and the U.S. Federal Reserve appear to have given up on plans to tighten policy, and markets are now positioned for easing,” Reuters added.

Economists expect the ECB’s next move to entail policy easing rather than tightening.

“Turning the [quantitatve easing] taps back on by the end of the year is an increasingly probable scenario,” said Nancy Curtin, chief investment officer at Close Brothers Asset Management.