The European Central Bank (ECB) left interest rates unchanged on Wednesday, holding off any fresh policy action for now while it waits to see whether a fragile euro zone recovery strengthens. The ECB has grown concerned about market interest rates, which moved higher over the summer at the prospect of the US Federal Reserve unwinding its stimulus.
Seeking to guide them down, the ECB said in July it would keep its rates at current or lower levels for an “extended period”, its first use of forward guidance. The ploy struggled to gain traction until the Fed last month delayed unwinding its stimulus. Investors will gauge how dovish Draghi sounds after the decision to leave the ECB's main interest rate at 0.5%.
The central bank also left the rate on its deposit facility at 0.0% and held its marginal lending facility — or emergency borrowing rate — at 1%.
“This is as expected,” Berenberg bank economist Christian Schulz said of the rate decision. “The economy is recovering, there is little pressure to cut rates at the moment. At the same time, inflation is low and plenty of downside risks are out there, so there is no pressure to tighten policy quickly.”
Last week, Draghi underlined the ECB's readiness to act, saying that, if needed, it could use another LTRO — ultra-long loans it issued in late 2011 and early 2012 to pump over 1.0 trillion euros ($1.35 trillion) into the system.
A majority of economists in a Reuters poll expect the ECB to keep its key rate at 0.5% until at least April of 2015. But they also expect it will serve up another course of LTROs to banks, possibly by the end of this year.