On Thursday The European Central Bank (ECB) made a decision to keep key interest rates for the euro unchanged. President Mario Draghi in his last conference had noted that negative interest rates have “boosted the economy.”
“Negative rates have stimulated the economy, have affected positively employment. And so all in all, we are exactly in the direction we wanted them to be,” Draghi said.
The announcement to keep the interest rates unchanged was made after the Governing Council of ECB met and agreed. This was the last of such meetings under President Mario’s tenure who will be leaving office at the end of this month.
Mario leaves office having maintained the base interest rate of the eurozone at 0.00%, as the deposit rate and marginal lending rates remain at 0.50% and 0.25% respectively. The central bank also reiterated that the asset purchase stimulus would reopen at a rate of 20 billion euros each month.
“Mario Draghi signed off today reiterating that he and the ECB have done if not whatever it took, but whatever it could, to get the euro area economy back on its feet,” said Gareth Isaac, chief investment officer for EMEA at Invesco Fixed Income.
“Despite assurances that there was further room for easing, realistically speaking monetary policy has reached its limits and he stated again that the baton must now move on to fiscal action, in those countries that have room to ease,” Gareth said.
The central bank’s Governing Council also reassured stakeholders that it expects key interest rates to remain unchanged or go lower until inflation converges to close to 2% or below. The convergence has consistently been reflected in underlying inflation dynamics.
Italian 10-year yields dropped 3.4 bps at 1%, German 10-year government bond yields were flat at -0.40% while France saw its 10-year bond yields drop 1.2% bps at -0.105%.
With Mario’s term coming to a close on October 31, ECB is warming up to its new president, Christine Lagarde, a former chairwoman of the International Monetary Fund.
“Lagarde needs both to try and quell dissent within the ECB over the September easing move and encourage governments to loosen fiscal policy, rather than rely on monetary policy, which is increasingly ineffectual, to do all the work stimulating growth,” head of research at Kingswood, Rupert Thompson said.
The EU will be closely monitoring among other key issues, how the incoming president intends to deal with cracks between the ECB’s Governing Council over its decision to reopen the stimulus taps.