ECB postpones rate increase as EU economic outlook worsens

The European Central Bank (ECB) has once again decided to delay a hike in interest rates on Thursday to ease pressure on a eurozone economy that is struggling to cope with a myriad of macroeconomic headwinds.

As the US-China trade war continues to weaken demand for European exports and Brexit uncertainty hampers economic growth in the eurozone the ECB remains reluctant to raise rates, with the bank vowing to keep rates unchanged until mid-2020.

ECB leaves interest rates unchanged

The ECB left the main refinancing rate untouched at 0% and the deposit rate at 0.4% as part of the central bank’s new targeted longer-term refinancing operation (TLTRO).

‘For banks whose eligible net lending exceeds a benchmark, the rate applied in TLTRO III will be lower and can be as low as the average interest rate on the deposit facility prevailing over the life of the operation plus 10 basis points,’ the ECB said in a statement.

Eurozone economic slowdown sees ECB contemplate fresh stimulus package

As eurozone economic expansion continues to slow, the ECB is forced to go back on previous promises to increase interest rates, with the central bank originally planning on increasing the cost of borrowing in the middle of this year.

In a press event earlier on Thursday, ECB President Mario Draghi said that economic risks remain due to macroeconomic uncertainties, rising protectionism and weaknesses in emerging markets.

The ECB forecasts eurozone economic growth of 1.2% in 2019, representing a slight uptick of 0.1% percentage points from its previous guidance in March, with GDP expected to hit 1.4% in 2020, down 0.2% percentage points compared with previous guidance.

Draghi also said that policymakers are prepared to provide further stimulus to the eurozone economy if needed, but the scope of the support it can provide has shrunk significantly with the main interest rate at 0% and the bank buying more than €2.6 trillion worth of bonds.