- Title: ECB keeps policy unchanged, faces questions over euro surge
- Date: 25th January 2018
- Summary: FRANKFURT, GERMANY (FILE) (REUTERS) VARIOUS OF ECB HEADQUARTERS
- Embargoed: 8th February 2018 14:15
- Keywords: european central bank euro draghi monetary policy
- Location: LONDON, ENGLAND, UK / FRANKFURT, GERMANY / UNDISCLOSED LOCATION
- City: LONDON, ENGLAND, UK / FRANKFURT, GERMANY / UNDISCLOSED LOCATION
- Country: Germany
- Topics: Economic Events
- Reuters ID: LVA0077ZM16DP
- Aspect Ratio: 16:9
- Story Text: The European Central Bank kept its ultra-easy policy firmly on hold on Thursday (January 25) but ECB chief Mario Draghi will now face the difficult task of addressing the euro's potentially damaging surge against the dollar.
Even as the euro zone economy roars ahead, a strong euro threatens to dampen inflation and endanger the work done by years of unprecedented stimulus, probably forcing Draghi to pour cold water on rising expectations that the ECB is speeding towards an interest rate hike.
His task was made even more delicate overnight when top U.S. officials made their case for a weak dollar, sending the greenback to a three year low against the euro and raising fears of renewed trade wars.
Still, in a widely expected decision, the ECB kept its key interest rate deep in negative territory, maintained a pledge to hold rates steady until well after bond buys conclude and promised to continue asset purchases until a sustained rebound in inflation.
"The Governing Council expects the key ECB interest rates to remain at their present levels for an extended period of time, and well past the horizon of the net asset purchases," the central bank said in a statement.
Any discussion about the euro is likely to be a delicate balancing act: the euro's five and a half percent rise since December holds back inflation which the ECB wants to see climb. But rapid economic growth and the likely end of the bond buys later this year justify some currency strength.
Wanting to keep all options on the table, Draghi is likely to signal a concern about the rapid rise in the currency but will maintain that it is not a policy target, hoping to strike a balanced message until policymakers are ready to unveil their blueprint for winding down stimulus, economists said.
Having bought more than 2 trillion euros worth of bonds over the past three years, the ECB has almost single-handedly depressed borrowing costs in the euro zone to kick start growth and lift prices.
The purchases, already twice reduced, are set to run until the end of September and investors are betting on their end in the fourth quarter. - Copyright Holder: FILE REUTERS (CAN SELL)
- Copyright Notice: (c) Copyright Thomson Reuters 2018. Open For Restrictions - http://about.reuters.com/fulllegal.asp
- Usage Terms/Restrictions: None
