The European Central Bank (ECB) left its key interest rates steady, as widely expected, and confirmed its recent guidance that it expects to maintain these rates "at least through the summer of 2019, and in any case for as long as necessary" to ensure inflation returns to its target of below, but close to 2.0 percent.
The ECB, the central bank for the 19 European countries that use the euro currency, also repeated that it would continue to reinvest the funds it receives from bonds that mature "for an extended period of time past the date when it starts raising the key ECB interest rates, and in any case for as long as necessary to maintain favorable liquidity conditions and an ample degree of monetary accommodation."
The euro eased against the U.S. dollar after the ECB's statement to 1.133 from around 1.38.
At its last meeting in December 2018, the ECB's governing council took the first small step toward normalizing its monetary policy by ending its asset purchase program (APP) after accumulating some 2.6 trillions euros of assets since it began in March 2015.
But the ECB's plan to return to more normal monetary policy and raise interest rates above the zero bound is taking place amid slower economic growth, not only in Europe but across the world.
Inflation in the euro area fell further below the ECB's target to 1.6 percent in December while economic growth in the third quarter slowed to only 0.2 percent from the second quarter for annual growth of 1.6 percent, down from 2.2 percent in the second quarter and 2.7 percent in the first quarter.
As the Bank of Japan, the Bank of England, Sweden's Riksbank and the U.S. Federal Reserve, the ECB resorted to large-scale asset purchases, known as quantitative easing (QT), after exhausting the limits of the conventional monetary policy tool of interest rates.
Unlike open market operations, in which central banks buy and sell government securities as part of conventional monetary policy, QT and the associated expansion of balance sheets was used as an extraordinary measure by central banks to boost liquidity and economic activity in the wake of the Global Financial Crises in 2008-2009 when key interest rates could not be lowered any more.
The ECB has been cutting its key interest rates steadily since November 2011 and exhausted the limits of conventional monetary policy in March 2016 when the benchmark refinancing rate was lowered to 0 percent while the deposit rate was cut to minus 0.40 percent and the marginal lending rate to 0.25 percent.
In that same month, the ECB also boosted the size and scope of its asset purchase program and launched four new longer-term refinancing operations - known as TLTRO II - under which financial institutions can borrow against loans they have extended to businesses.
The first round of 4-year TLTRO, which allows banks to lend more to businesses by borrowing more and at a rate that is lower than the ECB usually offers, was launched in 2014.
The European Central Bank released the following statement ahead of ECB President Mario Draghi's press conference:
"At today’s meeting the Governing Council of the European Central Bank (ECB) decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.40% respectively. The Governing Council expects the key ECB interest rates to remain at their present levels at least through the summer 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.
Regarding non-standard monetary policy measures, the Governing Council intends to continue reinvesting, in full, the principal payments from maturing securities purchased under the asset purchase programme for an extended period of time past the date when it starts raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation.
The President of the ECB will comment on the considerations underlying these decisions at a press conference starting at 14:30 CET today."
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