Monday, Jun 24

ECB keeps interest rates low due to global fluctuation

The European Central Bank has reacted to the threat of recession across the eurozone with a promise to keep interest rates at historically low levels for at least the rest of the year.
08.03.2019 - 13:12

The European Central Bank changed tack on its tightening plan on Thursday, pushing out the timing of its first post-crisis rate hike until 2020 at the earliest and offering banks a new round of cheap loans to help revive the eurozone economy.

GLOBAL TRADE WAR HAS EFFECTED THE MARKETS

The bolder-than-expected move came as the US Federal Reserve and other central banks around the world are also holding back on rate hikes. It underlined how a global trade war, Brexit uncertainty and simmering debt concerns in Italy are taking their toll on economic growth across Europe.

The policy changes cast ECB President Mario Draghi once again as a nurturer of confidence in the bloc’s still-fragile economy, only months after the bank announced the end of four years of unprecedented asset purchases, and as Draghi himself prepares to hand over the reins to a successor later this year.

"WE ARE IN A WEAK PROCESS"

Whereas the bank had previously said rates would remain at their record low levels through the summer, it said it now expected them to stay there “at least through the end of 2019”.


While investors had long stopped pricing in an ECB rate hike this year, few expected the bank to change its policy message at this meeting. The surprise move caused yields on government bonds to fall and the euro slipped to $1.1244, about 0.6 percent down on the day, after the announcement.

“We are in a period of continued weakness and pervasive uncertainty,” Draghi told a news conference as he announced cuts to the bank’s growth and inflation forecasts.