The European Central Bank (ECB) held interest rates steady Thursday, amid speculation that the bank will start to scale back its ultra-loose monetary policy in the fall.
Many market participants expect that improved economic growth in the euro zone will cause a shift away from years of easy money, underlined by interest rates being held at 0.00 percent for seventeen consecutive months.
The lack of movement on Thursday was widely anticipated, but ECB President Mario Draghi will have a thin line to tread in a press conference later in the session. He is expected to speak about this anticipated policy shift from the ECB, but not cause undue panic in asset markets.
Markets were shaken last month by hawkish comments from Draghi which suggested that the bank would steam ahead with interest rate hikes and the reduction of its bond-buying program – schemes used to inject cash into the economy.
During an ECB Forum in Sintra, Portugal, in June, Draghi said that “all the signs now point to a strengthening and broadening recovery in the euro area” and added the bank would need to be “persistent” and “prudent” in adjusting its parameters going forward.
The comments initiated a mini tantrum in financial markets as they caught a glimpse of the winding down of the unprecedented central bank stimulus which has characterized the last decade since the global financial crisis.
They came just weeks after the ECB’s monthly policy meeting in which it dropped its reference to future rate cuts but insisted that interest rates could be expected to “remain at present levels for an extended period of time.”
Since then, the ECB has resisted overtly backtracking on Draghi’s comments, in a bid to avoid confusing markets further, but it has been careful to temper its comments so as to prevent an unwanted tightening of monetary conditions.
With central banks increasingly keen to communicate their plans with markets and other international observers, economists had largely anticipated the move.
