ECB Leaves Rates Steady, Sees 'Highly Accommodative' Policy For 'Prolonged' Time

London (July 25)  The European Central Bank left interest rates unchanged Thursday, but policymakers said they envision a “highly accommodative stance of monetary policy for a prolonged period of time.”

The ECB Governing Council left the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility at 0.00%, 0.25% and minus 0.40% respectively.

Officials did not push out the length of time that interest rates are expected to remain low. The Governing Council said it “expects the key ECB interest rates to remain at their present or lower levels at least through the first half of 2020, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to its aim over the medium term.”

However, the Governing Council said it sees a “need for a highly accommodative stance of monetary policy for a prolonged period of time, as inflation rates, both realized and projected, have been persistently below levels that are in line with its aim. Accordingly, if the medium-term inflation outlook continues to fall short of its aim, the Governing Council is determined to act, in line with its commitment to symmetry in the inflation aim.”

The Governing Council said it has “tasked relevant eurosystem committees with examining options, including ways to reinforce its forward guidance on policy rates, mitigating measures, such as the design of a tiered system for reserve remuneration, and options for the size and composition of potential new net asset purchases.”

Policymakers said the ECB will continue reinvesting the principal payments from maturing securities obtained under the asset-purchase program for an “extended period of time past the date when it starts raising the key ECB interest rates, and in any case for as long as necessary to maintain favorable liquidity conditions and an ample degree of monetary accommodation.”

Financial markets were split on whether to expect a rate hike Thursday following fresh economic data showing weaker business morale in Germany, according to news reports.

“Amidst weaker euro-zone data, further stimulus seems to be a done deal,” Brown Brothers Harriman said in a research note just ahead of the ECB announcement. “The only real question is one of timing.”

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