ECB holds rates at historic lows as Mario Draghi waves farewell to Frankfurt
The central bank also kept its forward guidance unchanged, suggesting that its main interest rates will remain at their current or lower levels until there’s strong evidence of a pick up in prices. The euro traded fairly flat, at $1.1112 against the dollar.
“Incoming economic data continue to point to moderate, but positive growth in the second half of this year,” Draghi told reporters Thursday afternoon. He explained that weakness in international trade was denting manufacturing activity in the euro area, as well as business investment.
The ECB expects a gross domestic product rate for the region of 1.1% this year and 1.2% in 2020. It also forecasts a headline inflation rate of 1.2% and 1% for 2019 and 2020, respectively. The ECB’s mandate is to keep inflation “below but close to 2%.”
“A cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis confirmed that an ample degree of monetary accommodation is still necessary,” Draghi said Thursday.
The euro zone is seeing lower growth rates on the back of global trade tensions, a weaker manufacturing sector, and other economic uncertainties, such as Brexit.
In this context, the Frankfurt-based bank had announced last month a massive stimulus package to boost the euro area. This included a 10 basis point cut to the deposit rate, new lending conditions to commercial banks as well as a second round of quantitative easing. The current ECB deposit rate is -0.5%, the lowest on record.
The decision to restart purchasing government bonds sparked some division within the central bank. Minutes from the meeting revealed that some of Draghi’s colleagues were not on board with the decision.
Draghi, who’s set to leave the ECB after eight years next week, told CNBC’s Annette Weisbach that he’s not worried that this division will