October 24, 2019 / 11:56 AM / 2 months ago

ECB keeps policy unchanged but door stays open to more stimulus

FILE PHOTO: European Union flags flutter outside the European Central Bank (ECB) headquarters in Frankfurt, Germany, April 26, 2018. REUTERS/Kai Pfaffenbach/File Photo

FRANKFURT (Reuters) - The European Central Bank left policy unchanged as expected on Thursday but kept the door open to even more stimulus as the euro zone economy continues to suffer from the fallout of broader global turmoil.

With economic growth barely holding in positive territory and inflation at less than half of its target, the ECB unleashed a massive stimulus package last month, cutting rates deeper into negative territory and relaunching a recently shuttered bond purchase scheme.

In Mario Draghi’s last meeting as ECB boss, policymakers are likely to reaffirm this package, arguing that a dismal string of data since September justified the stimulus, despite noisy opposition from policy hawks.

With Christine Lagarde coming in to lead the bank from Nov. 1, policy is likely to be on auto-pilot for months to come, giving the bank’s new boss time and space to launch a promised review of the ECB’s policy framework.

“The Governing Council expects the key ECB interest rates to remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics,” the ECB said.

Attention now turns to ECB President Mario Draghi’s final news conference at 1230 GMT, where he is likely to emphasise downside risks to the economy.

With Thursday’s decision, the ECB’s rate on bank overnight deposits, which is currently its primary interest rate tool, remains at a record low of -0.50%.

The main refinancing rate, which determines the cost of credit in the economy, remained unchanged at 0.00% while the rate on the marginal lending facility — the emergency overnight borrowing rate for banks — remains at 0.25%.

Starting next month, the ECB will also start purchasing bonds, mostly government debt, at a rate of 20 billion euros a month.

Reporting by Balazs Koranyi; Editing by Catherine Evans

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