Mario Draghi says European Central Bank will discuss changing monetary policy in "autumn" after holding policy steady

 
Jasper Jolly
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ECB Mario Draghi said there were no discussions of tapering asset purchases (Source: Getty)

The European Central Bank (ECB) will discuss changing its monetary policy stance in the "autumn", according to its president, Mario Draghi, delaying a decision on its quantitative easing programme until at least September.

The ECB's monetary policymakers left interest rates and asset purchases unchanged at its latest meeting in Frankfurt today, but markets responded to Draghi's hint of tightening to send the euro above $1.157 against the US dollar after earlier falling to almost $1.148.

Quantitative easing asset purchases will continue until the end of December at a rate of €60bn (£53bn), the ECB announced, but the central bank is widely expected to give markets early warning of how it will proceed after that.

Read more: Watch out, ECB: Half of fund managers think monetary policy is too loose

The quantitative easing programme was introduced to stimulate the broader economy by taking bonds off bank balance sheets, but calls from economists to pare back the purchases have risen as growth and confidence have picked up in the Eurozone.

However, Draghi denied that the central bankers had discussed adjusting the programme and said that central bank staff had not done any economic analysis on possible options for changing the stimulus programme.

The next monetary policy meeting takes place on 7 September, but the specific date for announcing a change was "deliberately kept open", Draghi said. There was "unanimous" agreement in the governing council, he said: "don't set dates".

Read more: Tepid Eurozone inflation raises questions for ECB tightening

Draghi emphasised the weakness of inflation across the Eurozone. The headline inflation measure remains at 1.3 per cent, while underlying inflation (minus volatile energy and food prices) remains at 1.1 per cent, well below the ECB's two per cent target.

"Inflation is not where we want it to be and where it should be," he said. "It isn't there yet."

Gilles Pradere, a senior portfolio manager at Ram Active Investments, said: “The ECB has maintained a very supportive approach, because inflation remains too low, despite better growth prospects. Above all the ECB doesn’t want to have tighter financial conditions right now. This is true both for rates, and the currency."

How to understand the European Central Bank's interest ratesĀ 

The European Central Bank (ECB) has three rates:

  • The main refinancing operations: what banks pay to borrow from the ECB

  • The rate on the marginal lending facility: the rate at which banks lend to each other overnight

  • The deposit facility: the rate banks receive to leave money with the ECB overnight

The ECB has kept interest rates unchanged since March 2016, when all three were cut. They have since stayed at zero per cent, 0.25 cent and minus 0.40 per cent respectively.

If a rate is negative the bank will pay the ECB (rather than receiving money in interest). Negative rates are intended to encourage banks to lend money to businesses rather than holding it themselves or, as is the case with the deposit facility rate, depositing it with the ECB overnight.

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