Mario Draghi maintains rates in first ECB meeting since Brexit vote

Caitlin Morrison
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Draghi was expected to hold fire ahead of a difficult summer season for the Eurozone (Source: Getty)

The European Central Bank (ECB) has left rates unchanged across the Eurozone, in line with analysts' expectations.

The rates were decided at the first meeting of Europe's central bank since the UK voted in favour of a Brexit last month.

Economists were expecting no change to current rates, with the headline deposit rate remaining at minus 0.4 per cent and a 0.25 per cent rate on sums borrowed from the ECB by banks.

The bank's governing council said it "continues to expect the key ECB interest rates to remain at present or lower levels for an extended period of time, and well past the horizon of the net asset purchases".

The ECB confirmed that its monthly €80bn (£67bn) asset purchase programme will run until at least the end of March next year - and perhaps for the longer, if the bank does not see "a sustained adjustment in the path of inflation consistent with its inflation aim".

Major currencies were broadly flat on the news and were still unchanged as President Draghi hinted further stimulus cold be on the way in September. The pound slipped 0.3 per cent against the euro to €1.1957, while the euro was flat against the dollar at $1.1014.

"It appears that the European Central Bank, like the Bank of England, is currently in wait and see mode to assess the impact of the UK’s decision to leave the EU," said M&G Investment's Anthony Doyle, adding that uncertainty around Brexit would act as a drag on growth for the Eurozone.

"There are renewed signs of weakening growth dynamics in the Eurozone, and more importantly, uncertainty created by Brexit suggests another negative shock to growth is in the pipeline. In addition, given the fragile nature of economic recovery and the fact that monetary policy remains the key source of stimulus for the single currency area, a sustained monetary easing stance remains an important policy objective," Salman Ahmed, chief investment strategist at Lombard Odier Investment Managers, said ahead of today's meeting.

“We expect the ECB to expand the duration of the program at its September meeting and initiate a series of parameter changes allowing the central bank to ease some of the constraints on its ability to execute the easing program, which have started to come to the fore in recent weeks."

Ahmed said the consensus view is that the ECB's monetary policy "is likely to remain easy" for the foreseeable future.

"There was no smoke from the ECB's gun as the bank has decided to hold its fire as expected," said analysts at trading firm ThinkMarkets.

"Perhaps it was the best move because the bank certainly wants to assess the consequences of Brexit which has triggered the need for more QE and dragged the bond yields in negative territory, although some investors do question that if these central banks; the BOE and the ECB will bring any more stimulus."

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