European Central Bank keeps monetary policy on hold, likely to stand pat until September 2019

The European Central Bank kept its monetary policy on hold today, as expected, thereby leaving the deposit rate at 0.4 percent and asset purchases at EUR 30 billion. Meanwhile, the enhanced forward guidance introduced in June was reiterated, with Draghi and the remainder of the governing council seeing no need to change or add new language at the moment, noted DNB Markets in a research report.

Draghi mentioned that the governing council had not discussed the ECB’s reinvestment policy, but he did add that the capital key would stay an anchor for future investment policies. This is not surprising, but it might also signify a slight portfolio adjustment in 2018, when the capital key is updated.

During the press conference, Draghi stated that the outlook was largely unchanged from June, with “not much change for the medium-term inflation outlook”. Draghi expressed confidence in the economy, stating that the “it is clear that the moderation in growth depends essentially on the pullback of unusually strong growth in late 2017, which was caused by unusually strong export performance”.

Draghi also stated that there has been some softness in the second quarter, but that most indicators have stabilized above their historical averages. Significantly, Draghi and the governing council continue to see risk to the outlook as widely balanced.

“Going forward, we expect rates to remain on hold until September 2019, when the deposit rate is expected up 15 bps to -0.25%. Looking further ahead we see both the refi rate and deposit rate up by 25 bps in March 2020”, added DNB Markets.

At 14:00 GMT the FxWirePro's Hourly Strength Index of Euro was highly bearish at -133.087, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at 12.6809. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex