The headquarters of the European Central Bank (ECB) stands in Frankfurt (Photographer: Ralph Orlowski/Bloomberg)

ECB Keeps Policy Unchanged as Investors Seek Economic Update

(Bloomberg) -- The European Central Bank maintained its pledge to move slowly in winding down euro-area stimulus, as investors wait to see if President Mario Draghi will unveil a more upbeat economic outlook.

Policy makers reiterated that they’ll halve asset purchases to 30 billion euros ($35 billion) a month, starting in January and continuing until at least the end of September. They left interest rates unchanged and repeated that they expect borrowing costs to stay at present levels until well past the end of net bond-buying.

They also repeated their pledge to step up or extend the program if needed, and stressed that additional support will come from their policy of reinvesting maturing debt.

Click here to watch Draghi’s press conference

Attention will now turn to the updated growth and inflation forecasts Draghi is set to reveal in a press conference at 2:30 p.m. in Frankfurt. They’ll offer a first glimpse of the economy in 2020, the year after the Italian’s term ends.

ECB Interest Rates
Deposit Rateminus 0.4 percent
Main Refinancing Ratezero
Marginal Lending Rate0.25 percent

An improved outlook, as signaled by Governing Council member Jens Weidmann late last month, may trigger questions on whether policy makers will stick to their plans for a slow exit.

“Inflation remains stubbornly low,” said Bjoern Eberhardt, head of global macroeconomic research at Credit Suisse. “Nevertheless, given that the ECB will provide new forecasts that should reflect the improving euro-zone outlook, we think the sound of the press conference should be somewhat less dovish than in October.”

Although most economists predict officials will bring bond purchases to a gentle halt in the final quarter of 2018 and start raising interest rates well into 2019, some outliers say faster-than-forecast inflation and growing financial-stability risks could force quicker action.

In a spate of decisions in the past 24 hours, the Federal Reserve announced its third interest-rate increase of the year, China unexpectedly edged borrowing costs higher, and Norway signaled it may start raising rates earlier than previously expected. The Swiss National Bank predicted inflation will exceed its goal in late 2020 but said it won’t rush to boost rates. The Bank of England, after the first hike in a decade last month, kept policy on hold.

ECB Keeps Policy Unchanged as Investors Seek Economic Update

Slow Inflation

The ECB is moving as slowly as possible to avoid stoking market volatility that could undermine the euro area’s economic upturn. While economic growth has become increasingly robust since quantitative easing started almost three years ago, inflation has seen little progress toward the goal of just under 2 percent. 

Draghi may offer further details on the composition of asset purchases in 2018 after he said in October that the region’s central banks would continue buying “sizable” quantities of corporate bonds. The ECB’s Market Operations Committee has been reviewing that part of the program to gauge its effectiveness, according to euro-area officials familiar with the matter.

©2017 Bloomberg L.P.