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ECB Leaves Key Interest Rate at 0.0%, No Shift In Forward Guidance

The ECB left all benchmark interest rates on hold following the latest Council meeting with the main refi rate remaining at 0.0% and the deposit rate at -0.40%. The decision was in line with consensus forecasts with no expectations of any move to change rates at this meeting.

According to the statement, the bank expects that interest rates will be held at present levels for an extended period and well past the horizon of net asset purchases. This was also unchanged for the previous statement.

The statement reiterated that the bond purchases are intended to run at the present rate of EUR60bn per month until the end of December 2017 and beyond if necessary. In any case purchases would continue until the ECB sees a sustained adjustment in inflation consistent with its inflation aim.

If the outlook becomes less favourable, or financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, the council stands ready to increase the programme in terms of size or duration.

Despite a slight change in phrasing, there was no material change in the forward guidance, contrary to some expectations that references to a potential increase or extension of bond purchases would be dropped.

EUR/USD edged weaker to trade near 1.1480 from 1.1495 due to the slightly more dovish than expected statement and lack of chnage to forward guidance, while there was a rally in German bunds into positive territory for the day and equities moved higher.

President Draghi’s press conference will be watched closely with any further policy hints potentially important for underlying Euro sentiment. In particular, any hints surrounding the decision in September will be a key market factor.