ECB holds benchmark interest rate at zero

The Governing Council of the European Central Bank (ECB) announced on Thursday that it will leave interest rates unchanged, with the main rate remaining at 0% and the deposit facility at staying 0.4%. Key interest rates are expected to remain at their ‘present levels at least through the summer of 2019’.

The ECB did say that it will bring an end to its €15 billion quantitative easing (QE) programme in December.

‘Regarding non-standard monetary policy measures, the Governing Council will continue to make net purchases under the asset purchase programme (APP) at the new monthly pace of 15 billion euros until the end of December 2018,’ the ECB said in a statement.

‘The Governing Council anticipates that, subject to incoming data confirming the medium-term inflation outlook, net purchases will then end,’ the central bank added.

ECB awaits final outcome on Brexit

At the press conference, ECB President Mario Draghi was asked by reporters if the central bank had a begun contingency planning for Brexit.

Draghi explained that the ECB was working with the Bank of England to assess the potential fallout of a hard Brexit, warning that there will be an ‘uneasiness’ financial markets if negotiations breakdown and an agreement is not reached.

End of QE poses challenge for bond market

The announcement by the ECB that it will end its QE stimulus programme raises concerns over European bonds, with the central bank bringing an end to its purchasing of sovereign paper at the end of the year.

The move will put added pressure on Europe’s troubled banks, particularly in Italy, where its banks hold around €500 billion in bad debt on their books.

Draghi addressed concerns over the end of the ECB’s stimulus package, explaining how ‘monetary policy will remain very accommodative, especially with reinvestment’ and ‘forward guidance on interest rates’.

But he admitted that the ECB doesn’t have a ‘crystal ball’ and that if sovereign bonds values slide further it will harm the capital positions of Italian banks.