ECB keeps door open to easing after holding rates steady

Thu Jul 21, 2016 10:53am EDT
 
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By Balazs Koranyi and Francesco Canepa

FRANKFURT (Reuters) - The European Central Bank kept interest rates unchanged on Thursday but left the door open to more policy stimulus, highlighting "great" uncertainty and abundant risks to the economic outlook.

Signalling a readiness to act, ECB President Mario Draghi argued that Britain's decision to leave the European Union and weak emerging market growth both dampen the euro zone's own outlook, leaving the balance of risks tilted firmly to the downside and possibly requiring action.

But Draghi also noted that growth and inflation were both moving along the path projected in June so more evidence, including fresh staff projections in September, were needed before any decision.

"If warranted to achieve its objective, the Governing Council will act by using all the instruments available within its mandate," Draghi said. "So I would stress readiness, willingness, ability to do so."

The balanced comments give the ECB time until its September meeting to weigh the economic costs of Brexit without fuelling excessive market expectations, potentially leading to disappointment, even if it does decide to act.

Indeed, the euro EUR= and German yields <0#DEBMK=> were broadly unchanged late on Thursday with little volatility during Draghi's news conference.

"All in all, today's meeting was one that will quickly disappear from memories," ING economist Carsten Brzeski said. "More action in September is possible but not yet a given."

Keeping its deposit rate at minus 0.4 percent and the main refinancing rate at 0.00 percent, the bank reaffirmed its guidance to keep rates at current or lower levels for an extended period and beyond the scope of its asset purchase programme.   Continued...

 
European Central Bank (ECB) president Mario Draghi (R) and vice president Vitor Constancio attend a news conference at the ECB headquarters in Frankfurt, Germany, July 21, 2016.  REUTERS/Ralph Orlowski