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ECB Maintains Status Quo As Economy Slows


The European Central Bank held its key interest rates and forward guidance unchanged in April, after it announced long-term loans for banks in March, as activity in the euro area economy remains sluggish.

The Governing Council, led by ECB President Mario Draghi, left the key interest rates unchanged after the policy session in Frankfurt on Wednesday, as expected.

The main refi rate is currently at a record low zero percent and the deposit rate at -0.40 percent. The marginal lending facility rate is at 0.25 percent.

Eurozone interest rates were raised last in July 2011 by 25 basis points.

"The Governing Council expects the key ECB interest rates to remain at their present levels at least through the end 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 percent over the medium term," the bank said.

The bank also intends to continue reinvesting, in full, the principal payments from maturing securities purchased under the asset purchase programme for an extended period of time beyond the next rate hike, for as long as necessary to maintain favorable liquidity conditions and an ample degree of monetary accommodation.

Draghi is set to hold his customary post-decision press conference at 8.30 am ET.

This was the last monetary policy meeting with Peter Praet as the ECB Chief Economist. His term ends in May and the next policy meeting is scheduled for June 6.

In the March meeting, the ECB decided to offer more cash at cheaper rates to banks via long-term loans to boost lending to a slowing economy. The bank also slashed the growth and inflation forecasts for the euro area.

The new series of targeted longer-term refinancing operations, or TLTRO-III, is set to start in September this year and end in March 2021, thus with a maturity of two years.

The ECB had ended its massive asset purchase programme in December.

The bank also tweaked its forward guidance on interest rates to signal that the first interest rate hike since the global financial crisis would happen only in 2020.

In April, economists and observers expect Draghi to drop hints of a possible move towards a tiered deposit rate, but no final decision is likely as of now.

The minutes of the March policy session showed that policymakers did extensively discuss the impact of negative interest rates on banks.

"Don't forget that the ECB still has not explained what the so-called built-in incentives in the next TLTROs could be," ING Bank economist Carsten Brzeski said.

"In our view, there is no rush to present any details this week. Instead, we expect the ECB to wait until the June meeting."

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