ECB leaves rates unchanged, saying goodbye to Draghi

ECB leaves rates unchanged, saying goodbye to DraghiECB leaves rates unchanged, saying goodbye to Draghi

The European Central Bank (ECB) left rates unchanged on Thursday, this was the last meeting of Mario Draghi on monetary policy as head of the European regulator.

The ECB also left its forecasts unchanged, suggesting that key interest rates will remain at their current or lower levels until there is strong evidence of a price increase. Against this background, the euro traded quite smoothly, at the level of $ 1.11.

«Incoming economic data continues to point to moderate but positive growth in the second half of this year», – Mario Draghi told reporters Thursday afternoon. He explained that weakness in international trade is holding back manufacturing activity in the euro area and business investment..

The ECB expects GDP to be 1.1% this year and 1.2% in 2020. He also projects headline inflation of 1.2% and 1% in 2019 and 2020, respectively. The ECB’s mandate is to contain inflation «lower but close to 2%».

«Cross-checking the results of economic analysis with signals based on monetary analysis, confirming that a sufficient degree of monetary adjustment is still needed», – Draghi said on Thursday.

When asked what advice he gave to the former head of the International Monetary Fund Christine Lagarde, who attended but did not attend Thursday’s meeting, he replied: «No advice needed».

The euro area is experiencing lower growth amid global trade tensions, a weaker manufacturing sector and other economic uncertainties such as Brexit.

In this context, the ECB in Frankfurt announced last month a massive stimulus package to expand the euro area. This included a 10 basis point cut in the deposit rate, new lending terms for commercial banks, and a second round of quantitative easing. The ECB’s current deposit rate is -0.5%, the lowest ever.

The decision to resume buying government bonds caused some division within the central bank. The minutes of the meeting showed that some of Draghi’s colleagues did not accept this decision..

Draghi, who is set to leave the European Central Bank next week after eight years as head of the European Central Bank, told CNBC’s Annette Weisbach that he is not worried that the split would somehow damage his legacy..

«To be honest, the answer is no. We have discussions, we all have discussions; In all jurisdictions, there is disagreement when decisions on monetary policy are discussed, and these disagreements are often made public, often not. So you may think that this is not the first time. I took this as an integral part of the ongoing debate and discussion.», – he said.

The ECB reiterated on Thursday that the second round of QE will begin on November 1 at a monthly rate of € 20 billion ($ 22.3 billion) per month.

«The Governing Board expects that they (quantitative easing measures) will work as long as it takes to enhance the compromise impact  interest rates, and will end shortly before key interest rates of the ECB start to rise», – said in a statement from the regulator.

The ECB is likely to remain in trouble, and Lagarde will have to face objections that Draghi’s policy of negative interest rates and massive bond purchases is hurting depositors, squeezing bank and pension options. funds and inflates financial bubbles, albeit doing little to achieve the inflation target.

And not only a few outstanding «hawks», including governors of central banks in Germany, the Netherlands and Austria, questioning the feasibility of restarting the bond purchase program.

France’s representatives on the ECB’s Governing Council also join this choir. 95% of respondents in a Reuters poll said the stimulus package will not significantly bring inflation back to the ECB’s target of just under 2%.