ECB Interest Rate Unchanged As Draghi Tests Brexit Effect

The ECB Interest Rate forecast 2016 for July Unchanged by Mario Draghi president of European Central Bank, The Draghi says he keeps ECB Interest Rates forecast 2016 for Jul on hold to tests the Brexit Effect. ForexSQ forex trading news blog provide full information about the ECB Monetary policy decisions today.

ECB interest rate forecast 2016July

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The European Central Bank kept its stimulus program unchanged as policy makers try to assess the economic damage inflicted by the U.K.’s vote to leave the European Union.

Officials left the main refinancing rate at zero, the deposit rate at minus 0.4 percent and asset purchases at 80 billion euros ($88 billion) a month as predicted in a survey. Britain’s decision to split from its main trading partner will loom large as President Mario Draghi addresses reporters at 2:30 p.m. in Frankfurt.

“The Governing Council continues to expect the key ECB interest rates to remain at present or lower levels for an extended period of time, and well past the horizon of the net asset purchases,” the ECB said in a statement on Thursday. The central bank “confirms that the monthly asset purchases of 80 billion euros are intended to run until the end of March 2017, or beyond, if necessary, and in any case until it sees a sustained adjustment in the path of inflation consistent with its inflation aim.”

Draghi has predicted the U.K. referendum result will slow euro-area growth and he may signal officials are ready to deploy more stimulus in September, when they will also have new economic forecasts. Still, a major concern is how much further the ECB can go, with its 1.7 trillion-euro asset-buying program increasingly constrained by ultra-low yields.

“The big question for Draghi is how bad the Brexit will be for the economy and to answer that question they need to wait some time for the dust to settle,” Anatoli Annenkov, a senior economist at Societe Generale SA in London said before the decision. “The room to act is very limited and if they expand asset purchases they will have to decide how to deal with a problem of a much-reduced universe of eligible bonds.”

The euro was little changed after the announcement, trading at $1.1017 as of 1:54 p.m. in Frankfurt.

Policy makers around the world are grappling with the fallout from Britain’s June 23 referendum. The International Monetary Fund cut its outlook for the global economy this week and the Bank of England has signaled it may announce additional stimulus next month as it seeks to shore up the U.K. economy.

Economists surveyed see the greatest chance of extra ECB stimulus at the Sept. 8 meeting and predicted the instrument of choice would probably be extending quantitative easing beyond March 2017.

Prolonging purchasing may raise the problem of a shortage of government bonds to buy under the ECB’s own rules on minimum yields, a situation Draghi may choose to address at Thursday’s press conference.

Yields on German debt — which must be bought in greater proportion than other securities under the current rules of the QE program — have collapsed after investors sought safer assets after the U.K. vote. Under its self-imposed limits, the ECB can’t buy government debt yielding less than the deposit rate.

While Draghi has predicted Brexit could weaken euro-area growth by as much as 0.5 percentage point over the next three years, Governing Council member Luis Maria Linde said last week the ECB won’t provide its estimate until September “at the earliest.” His colleague Peter Praet, the central bank’s chief economist, warned earlier this month the U.K. vote to leave “may weigh on economic confidence and partly reverse the recent improvements in investment and consumption.”

There are already signs he might be right. Euro-area consumer confidence deteriorated in July, while German investor sentiment slid to its lowest level since November 2012.

A problem for ECB policy makers is that although they’ve gone out of their way to spur credit expansion, the pick-up in lending remains timid. Likewise, while inflation ticked up to 0.1 percent in June after two months below zero, it’s still far away from the ECB’s goal of just-under 2 percent.

ECB Monetary policy decisions

Regarding non-standard monetary policy measures, the Governing Council confirms that the monthly asset purchases of €80 billion are intended to run until the end of March 2017, or beyond, if necessary, and in any case until it sees a sustained adjustment in the path of inflation consistent with its inflation aim.

The President of the ECB will comment on the considerations underlying these decisions at a press conference starting at 14:30 CET today.

Mario Draghi ECB press conference highlights

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“The figure that circulated in the aftermath of Brexit was the impact (on euro zone growth) of 0.2-0.5 percent over three years, I believe the Commission has come out with a similar figure of 0.25-0.5 percent.

“We should take these estimates with some grain of caution.

“Large uncertainties prevail because first of all these figures will in the end depend on how long is the stretch of time for these negotiations to be completed and therefore to give a certain outlook which we don’t have today.

“And second, these figures will also depend on what kind of outcome is going to come out, so I think they have to be taken with a grain of caution.

“What is clear is that financial markets and the banking sector have reacted in a fairly resilient fashion to the event. We haven’t observed any disruption either in financial markets or the banking sector.”


“In the past we’ve given enough evidence … of our ability to adapt our purchases to reach 80 billion euros a month until March 2017 or beyond.”


“Bank equity prices are of some significance for policymakers because, when if they drop in the way they did, one would assume this is to stay, cost of capital would increase and therefore the net return on lending would decrease, and would suggest on the banking side a more conservative lending behavior. That’s why we do care about bank equity prices for the transmission of our monetary policy.”


“Monetary policy is semi-supportive of economic activity and is focused on maintaining price stability. But also other policy measures are needed to reap the full benefits of our monetary policy and one of them is to address the non-performing loans and more generally non-performing exposures in the euro area.

“We wouldn’t consider it a risk but it has to be addressed.

“It is a complex program and we may come back and address it later on.

“We have in place the rules, the rules of state aid and as I have said several times these rules contain all the flexibility to cope with exceptional circumstances.

“The power and the responsibility in activating these rules lies with the Commission.”


“On the inflation outlook, Brexit didn’t seem to have any effect on inflation expectations.

“On the other hand, the market-based expectations show a significant decline (in inflation expectation) … then a recovery.”


“We concluded that we didn’t have information yet to take decisions, and we decided that over the coming months when we have more information including new staff projections we’ll be in a better position to assess the underlying macroeconomic conditions and no attention was really given to discuss specific instruments at this point in time.”


“Following the UK referendum on EU membership, our assessment is that euro area financial markets have weathered the spike in uncertainty and volatility, encouraging (corrects previous ‘with courage’) resilience. The announced readiness of central banks to provide liquidity if needed, and our accommodative monetary policy measures, as well as our robust regulatory and supervisory framework, have all helped to keep market stress contained. Financing conditions remain highly supportive.” ForexSQ forex trading blog use Bloomberg and Reuters as source.

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