ECB Holds Interest Rates Steady, Confirms End of Bond Buying

Investing.com – The European Central Bank left interest rates on hold Thursday in a widely-anticipated decision and reiterated that they will remain unchanged until at least summer 2019.

The euro zone monetary authority left its main refinancing rate, which determines the cost of credit in the economy, unchanged at , where it has been since March 2016.

The ECB also confirmed the end of its €2.6 trillion ($2.96 trillion), four-year-long bond buying program, while reiterating that it will reinvest principal payments from maturing securities for an extended period of time.

Investors will now be focusing on the ECB with President Mario Draghi at 8:30 AM ET (13:30 GMT) as they look for any shift in the central bank’s outlook.

As the euro area faces global trade conflicts and unresolved Brexit negotiations, reduced exports and a slowdown in spending and investment have cut the pace of euro-area growth in half during the last quarter. Since then, data have pointed to persistent weakness.

“Ending quantitative easing now looks more like the ammunition is running out rather than (being) based on a convincing economic outlook,” Societe Generale economist Anatoli Annenkov said.

The ECB’s problem is that growth is weaker than policymakers thought just weeks ago, while a rise in underlying inflation has failed to materialize, putting in doubt some of the bank’s assumptions about the broader economy.

Overall inflation may be near the target now, but falling oil prices suggest a dip in the months ahead and a solid rise in wages is not feeding through to prices, leaving the bank with a disconnect.

“We now expect the ECB to hike interest rates in 2020 and not by late 2019 as currently communicated in the banks’ forward guidance,” Fitch Ratings said on Wednesday. “We expect the ECB to change its forward guidance on interest rates in the next few months.”

— Reuters contributed to this report

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