European Central Bank announces fresh stimulus, won’t hike rates this year

European Central Bank
The eurozone consists of EU members that have adopted the euro (€) as their common currency and sole legal tender. It consists of Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain.

The European Central Bank (ECB) announced it won’t be raising interest rates in the eurozone until 2020 amid a “sizeable moderation” in growth in the area.

“We are [in] a period of continued weakness and pervasive uncertainty. The near-term growth outlook will be weaker than previously anticipated,” said ECB president Mario Draghi.

Draaghi said the bank now expects the euro area’s economy to grow by just 1.1% this year, down from a previous forecast of 1.7%. Inflation is forecast to be 1.2%, down from earlier expectations of 1.6% inflation.

“The persistence of uncertainties related to geopolitical factors, the threat of protectionism and vulnerabilities in emerging markets appears to be leaving marks on economic sentiment,” Draghi told reporters in Frankfurt.

The interest rate on the main refinancing operations and rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.40% respectively.

The ECB said it expects interest rates to “remain at their present levels at least through the end of 2019, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term.”

The ECB also made a fresh offer of cheap funding for banks in the region. A series of quarterly targeted longer-term refinancing operations (TLTRO-III) will be launched, starting in September 2019 and ending in March 2021, each with a maturity of two years.

“Like the outstanding TLTRO programme, TLTRO-III will feature built-in incentives for credit conditions to remain favourable,” the ECB said.

The move should let lenders provide better credit conditions to customers and help stimulate the real economy.

The ECB’s decision to delay any rate hikes comes as the central banks of other major world economies have similarly decided to hold back on increases, including the Bank of England and the US Federal Reserve.

The euro dropped by 0.6% against the dollar after the ECB’s announcement to as low as $1.1243.

The full press conference after the meeting of the Governing Council of the European Central Bank on 7 March 2019 at its premises in Frankfurt am Main, Germany: