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ECB holds rates but halves monthly bond purchases

Berlin – The European Central Bank said on Thursday it was planning to hold interest rates at their current historic lows for at least another year, while saying it planned to halve its monthly bond purchases from October.

After announcing plans in June to exit its 2.4-trillion-euro (2.8-trillion-dollar) emergency monetary plan by December, the ECB announced it had left its benchmark refinancing rate on hold at a record low of zero.

Cutting the monthly bond purchases

The Frankfurt-based bank also confirmed it was cutting its monthly bond purchases from 30 billion euros (35 billion dollars) to 15 billion euros from October to December despite signs that growth had slowed in the 19-member eurozone economy.

"The governing council expects the key ECB interest rates to remain at their present levels at least through the summer of 2019," to ensure consumer prices remain in line with the bank's annual inflation target of just below 2 per cent, the ECB said in a statement.

Recently, signs have emerged that the eurozone economy has lost momentum amid the global economic uncertainty unleashed by US President Donald Trump's "America First" protectionist agenda.

However, the Frankfurt-based ECB's rate-setting meeting came just one day after Trump and the European Union took steps to avert a trade war between by agreeing to a plan aimed at resolving their tensions over trade.

In addition to the refinancing rate, the ECB decided on Thursday to hold its deposit rate at minus 0.4 per cent and the marginal lending rate at plus 0.25 per cent.

The eurozone's economic prospects

Speaking to European lawmakers this month, ECB chief Mario Draghi painted an upbeat picture of the eurozone's economic prospects, saying the bank's monetary strategy had been "very effective" in firing up growth and inflation in the eurozone.

But the London-based IHS Markit research group said on Tuesday its closely watched composite purchasing managers' index for the currency bloc slipped to a two-month low this month.

Added to the uncertain economic climate is the risk that the stalled Brexit talks will result in Britain making a chaotic exit from the European Union.

However, with inflation having breached the ECB's target, market focus is now likely to be on Draghi's comments at his Thursday press conference on the bank's long-term outlook for interest rates.

Annual consumer prices in the currency bloc climbed to 2 per cent in June - the highest since February last year - compared to 1.9 per cent in May, consequently higher than the bank's annual inflation target of just below 2 per cent.