ECB Monetary Policy: No more rate cuts as reference to further cuts stopped

The European Central Bank (ECB) kept monetary policy unchanged at its today’s meeting in Estonia. More importantly, it has removed a reference to further rate cuts. While the central bank kept its deposit rate at the record low of -0.4 percent and vowed to keep purchasing assets at the pace of €60 billion per month until December or at beyond if necessary, it has removed a crucial reference to further rate cuts. It has removed the reference, saying that ECB would cut rates further if necessary.

Here is the full statement,

“At today’s meeting, which was held in Tallinn, the Governing Council of the ECB decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.40% respectively. The Governing Council expects the key ECB interest rates to remain at their present levels for an extended period of time, and well past the horizon of the net asset purchases.

Regarding non-standard monetary policy measures, the Governing Council confirms that the net asset purchases, at the current monthly pace of €60 billion, are intended to run until the end of December 2017, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim. The net purchases will be made alongside reinvestments of the principal payments from maturing securities purchased under the asset purchase programme. If the outlook becomes less favourable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, the Governing Council stands ready to increase the programme in terms of size and/or duration.

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

The euro, however, is not making much of this removal and currently trading at 1.122 against the dollar. We suspect the exchange rate would begin to move higher once the Draghi speech is done with.