The European Central Bank has held interest rates steady. No change to the main refinancing rate at 0.00%. No change to the deposit rate of -0.40%. This has come as little real surprise for the market. However, the ECB has also pushed the door wide open for easing in subsequent meetings, including the prospect of a package of easing measures. We look at the impact.
The changes to the statement come in three main sections:
It was expected that the ECB would use this meeting as one to lay the groundwork for easing in September. Unless there is a dramatic turnaround on inflation, then a 10 basis point cut to the deposit rate is now highly likely in September. However this could also be met with other easing measures (tiering deposit rate, resuming the Asset Purchase Program). Over to Mario Draghi to potentially add some further detail, however, the ECB is getting ready to ease.
The market has taken this as a dovish lean. Bund yields have fallen, the euro has slipped are lower and equities have rallied.
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