The European Central Bank left its ultra-easy monetary policy stance unchanged as expected on Thursday, keeping rates at record lows and even leaving the door open to more asset buys if the outlook worsens.
After ECB chief Mario Draghi raised the prospect of policy tightening last month, he signalled that any policy tweaks would come only gradually, setting the scene for a possible discussion in September about a long-awaited tapering of its asset buys.
“We need to be persistent and patient because we aren’t there yet, and prudent,” Draghi told his regular news conference after a meeting of ECB policy-makers in Frankfurt.
He stressed that the bank’s governing council were unanimous both on the decision to keep its guidance unchanged and to avoid setting a precise date for a discussion of future policy, noting only that it would occur in the autumn.
The prospect of reduced monetary stimulus has kept financial markets edgy, with investors sifting through clues to gauge how big central banks around the globe will unwind unconventional policy that have kept borrowing costs at rock bottom.
Euro and government bond yields across the bloc initially slipped after the statement. But as Draghi spoke, eurozone bond yields gained ostensibly on his confirmation of expectations that the taper would be discussed in autumn.
The euro firmed more than 3 per cent and German 10-year yields doubled since Draghi’s policy hint. Indeed, the euro’s 11 per cent rise this year will weigh on inflation, compounding the impact of a more than 10 per cent drop in crude oil prices.
“As core inflation remains subdued, the ECB will likely prefer to err on the side of caution, that is moving more slowly rather than faster than many observers project,” Holger Schmieding at Berenberg noted.
Still, the ECB is unable to kick the can down the road indefinitely as its asset buys are set to run until the end of the year and policymakers argue that a decision on an extension or a gradual wind down must be taken in September or October.