European Central Bank sits tight but further interest rate cuts a possibility

21st January 2016

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The European Central Bank sat tight on Thursday at its January policy meeting and kept interest rates on hold.

In the face of near zero inflation, ECB president Mario Draghi held rates at their negligible level of 0.05% while the overnight deposit rate was left in negative territory at -0.3%, after being cut from -0.2% in December.

It does appear that the ECB is willing to take rates lower as its statement commented that interest rates are expected ‘to remain at present or lower levels for an extended period of time’.

However in terms of its stimulus measures Draghi indicated that the Governing Council was unanimous in the need to review the policy stance in March, which come across as significant given the divisions that occurred over the December measures.

Draghi stated that there are no limits to how far the ECB is willing to deploy all the instruments available to it under its mandate to get consumer price inflation up to near 2%.

The ECB has already extended running its Quantitative Easing (QE) program to “at least the end of March 2017.

Howard Archer, chief UK and European economist at IHS Global Insight said he believes there is a good chance that the ECB will step up its monthly spend on assets from the current level of €60bn.

“However, there is clearly a significant bloc within the Governing Council, led by the German contingent that is against more QE,” added Archer. “While Draghi gave no indication as to what actual measures the ECB could introduce in March, it looks likely that it will include another trimming of the deposit interest rate.”

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