ECB keeps Rates on Hold at Record Lows

The European Central Bank (ECB) kept Wednesday rates unchanged at record lows, one month after the launch of its 1 trillion-euro ($1.1 trillion) quantitative easing (QE) programme.

The central bank left its main interest rate unchanged at a record low of 0.05 percent.

Investors are now focused on ECB President Mario Draghi’s press conference at 1.30 p.m. BST, at which Draghi is seen to strike a balance between optimism and caution. He may also broaden the list of national agencies eligible for QE-related purchases, according to analysts.

This comes after an ECB survey published Tuesday showed lending in the bloc—which QE is aimed at stimulating—is on the up. The quarterly survey said euro zone banks had reported a “further net easing of credit standards on loans to enterprises.”

Demand for business loans also rose in the first quarter, the survey showed, an encouraging sign that the bloc’s chronically weak credit activity is gaining strength.

In March, the European Central Bank began buying government bonds and other forms of debt at a rate of 60 billion euros a month, having originally announced the program in January.

“With sovereign QE having gotten off to a satisfactory start in March, when the ECB exactly met its 60 billion euros a month purchase target, there is no apparent need to tinker with the main parameters (monthly size, asset split, duration) of its asset purchases,” said Robert Kuenzel, director of euro area economic research at Daiwa Capital Markets Europe.

“We do, however, expect the ECB to broaden the list of national agencies eligible for QE-related purchases, to probably include some Italian and Dutch names at the very least,” he said.

Greece is also likely to be in focus at the press conference, as ECB policymakers have approved further emergency funding for Greek banks, according to Reuters.

Athens sold 812.5 million euros of three-month Treasury bills in the second of two auctions on Wednesday, in an effort to raise some much needed cash.

“In the press conference we expect Draghi to strike a fairly confident note. Given that private sector interest rates and credit conditions continued to ease in the first quarter, as yesterday’s ECB bank lending survey suggested happened for corporate and consumer credit in the euro area and its three largest economies alike, Draghi might plausibly argue that QE is showing many of the desired effects already,” Kuenzel said.

Source: CNBC