ECB delays policy easing on lack of bond-buying pressure

The European Central Bank remained on hold at its monetary policy meeting held Thursday, slightly delaying its decision to ease interest rates, against the backdrop of lacking bond-buying pressure in the central bank’s asset purchase program amid numerous global headwinds.

The ECB kept its interest rates and forward guidance unchanged, largely as expected as Italy’s bank troubles, coupled with Britain’s decision to exit the European Union and the difficulty in finding enough bonds to buy in its asset purchase program all worked to create enough external headwinds for the central bank to play with.

The ECB kept its deposit rate at -0.4 percent and the main refinancing rate at 0.00 percent, both at record lows, attempting to reduce costs of borrowing for firms and force commercial banks to lend loans, rather than keeping money with themselves.

Moreover, The ECB is buying 1.74 trillion euros (USD1.91 trillion) worth of assets to cut borrowing costs, induce spending, lift growth and ultimately raise inflation, which has been stuck on the either side of zero for past two years. Brexit may seem to be the greatest of all problems; however, the ECB is unable to cater to this issue on lack of information.

In addition, the bank, in its MPC statement, said that its monthly 80 billion euro program would run until March 2017 or beyond if required, until it sees an upward adjustment of inflation toward its target of 2 percent.

Meanwhile, a Reuters poll of few analysts showed that they have cut 2017 euro zone growth forecasts to 1.3 percent from 1.6 percent, they left their inflation projection unchanged at 1.3 percent, a mixed reading for the ECB, which targets inflation at just below 2 percent.

"Draghi will likely nurse market concerns about the ECB’s monetary policy by using a dovish tone and possibly pointing to further action later this year," Reuters reported, citing Florian Hense, Economist, Berenberg.