ECB keeps monetary policy unchanged as widely expected. Main refinancing rate is kept at 0.00%. Marginal lending facility and deposit facility rates are held at 0.25% and -0.40% respectively.

Forward guidance is changed to reflect the possibility of lower interest rates. That is, interest rates are expected to “remain at their present or lower levels at least through the first half of 2020”.

Also ECB “stands ready to adjust all of it instruments” if “medium-term inflation outlook continues to fall short of its aim”

Full statement here.

Monetary Policy Decisions

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 or lower levels at least through the first half of 2020, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to its aim over the medium term.

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 Governing Council also underlined the need for a highly accommodative stance of monetary policy for a prolonged period of time, as inflation rates, both realised and projected, have been persistently below levels that are in line with its aim. Accordingly, if the medium-term inflation outlook continues to fall short of its aim, the Governing Council is determined to act, in line with its commitment to symmetry in the inflation aim. It therefore stands ready to adjust all of its instruments, as appropriate, to ensure that inflation moves towards its aim in a sustained manner.

In this context, the Governing Council has tasked the relevant Eurosystem Committees with examining options, including ways to reinforce its forward guidance on policy rates, mitigating measures, such as the design of a tiered system for reserve remuneration, and options for the size and composition of potential new net asset purchases.

The President of the ECB will comment on the considerations underlying these decisions at a press conference starting at 14:30 CET today.

ECB Governing Council member Francois Villeroy de Galhau, in an interview with the German newspaper Handelsblatt published yesterday, weighed in on the current debate surrounding ECB’s interest rates. Stating his view clearly, Villeroy remarked, “Today, I think there’s no justification for an additional increase in the ECB rates.”

Rather than focusing on the peak in rates, Villeroy believes the dialogue should shift towards the concept of a rate “plateau.” In his words, “we’ll remain on this plateau as long as necessary.”

Villeroy also provided reassurance regarding the economic outlook of the eurozone. Contrary to the hard landing fears that loomed last winter, he noted, “We are not facing the worst-case scenario.” Elaborating further, he added, “I believe our monetary policy can and should now aim for a soft landing for the euro zone: We’ll exit inflation, and we’ll probably do so without a recession.”

Commenting on the broader market sentiments, Villeroy observed that expectations, both in Europe and US, have historically been “a little too optimistic regarding a future rate cut.”