Yahoo Finance European Central Bank leaves interest rates unchanged
The European Central Bank (ECB) has held key euro zone interest rates at their record lows as expected but will make an earlier exit from its economic stimulus program as it tackles unexpectedly high inflation.
The ECB said it will "take whatever action is needed" amid the Ukraine crisis and inflation uncertainty.
The central bank’s benchmark refinancing rate remains at 0%, the rate on its marginal lending facility sits at 0.25% and the rate on its deposit facility was kept at -0.5%.
Laying out a quicker reduction in its bond-buying plans this year, the ECB said it would reduce asset purchases to €40bn in April, €30bn in May and €20bn in June.
Read more: European stocks fall as oil prices cool ahead of ECB rates decision
Buys in the third quarter will be “data-dependent” the ECB added. Previously it set purchases at €40bn euros in the second quarter, €30bn in the third quarter and €20bn in the fourth quarter.
“If the incoming data support the expectation that the medium-term inflation outlook will not weaken even after the end of our net asset purchases, the governing council will conclude net purchases under the APP in the third quarter, ” the ECB said in a statement.
It added that any adjustments in interest rates will take place “some time” after the end of asset buys and they would be “gradual.”
Neil Birrell, chief investment officer at Premier Miton, said: “The ECB has been clearer than expected in its policy outlook given the war in Ukraine and associated factors are moving so quickly. It looks like rates are going nowhere, up or down, any time soon.
“The only real certainty is that inflation is on the way up and growth is under threat – it must even be worried about financial stability, so caution and flexibility are the watchwords.”
Inflation across the 19 countries that use the euro could be three times the ECB's 2% target this year and is likely to remain elevated next year, too.
Paul Craig, portfolio manager at Quilter Investors, commented: “Given the ECB has been so far behind the curve when it comes to tightening policy, the last thing it would have wanted to be contending with was a further inflationary shock.
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“This is precisely what has happened with the Russian invasion of Ukraine, and inflation in the Eurozone is now forecast to be higher for longer.”
Seema Shah, chief strategist at Principal Global Investors, added: “Despite the severe deterioration in the Euro area’s economic outlook, the ECB retained a more hawkish tone in their statement. A faster winding down of the asset purchase program will perhaps come as a surprise to market participants who expected an ECB capitulation in the face of weaker growth forecasts. Yet, with inflation still drastically above their target, it is important that the ECB retains an air of unwavering commitment to price stability.
“However, make no mistake, if the conflict is prolonged and elevated energy prices weigh heavily on household consumptions and confidence, the ECB will find it immensely tough to raise rates this year. Who would want to be a central banker in this situation?”
The ECB’s meeting in Frankfurt, Germany comes exactly two weeks after Russian president Vladimir Putin launched a full-scale invasion of Ukraine.
Watch: How does inflation affect interest rates?
