ECB Hold Rates Steady, Hints at Tiered Deposit Charge, Autumn QE Revival

The European Central Bank held its key interest rates unchanged following its regular policy meeting in Frankfurt Thursday, but hinted at near-term policy support for the struggling Eurozone economy.
By Martin Baccardax ,

The European Central Bank held its key interest rates unchanged following its regular policy meeting in Frankfurt Thursday, but hinted at near-term policy support for the struggling Eurozone economy.

While leaving its three key rates at record lows, including the 0.4% charge it applies to deposits held at the ECB overnight by lenders around the region, the ECB also alluded to potential tweaks to both that rate, and the main refinancing rate -- which sits at 0% -- when the Bank meets again in the autumn. The Bank also alluded to the potential to restart it controversial €2.4 trillion quantitative easing program, which has been dormant since the end of last year.

"The Governing Council 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," the Bank said in a statement. "It therefore stands ready to adjust all of its instruments, as appropriate, to ensure that inflation moves towards its aim in a sustained manner."

"In this context, the Governing Council has tasked the 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," the statement read.

The euro was marked at a fresh three-month low of 1.1117 against the U.S. dollar following the ECB decision, while benchmark 10-year bund yields hit a fresh record low of -0.41%.

"It is clear that today's meeting was the last stop before new ECB action," said ING economist Carsten Brzeski. "It now increasingly looks as if the September meeting will not only bring a single measure but rather a package of several measures."

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