The European Central Bank (ECB) left its benchmark interest rate unchanged on Thursday and dropped any reference to a future rate cut.
In a statement it said it expected interest rates to “remain at present levels for an extended period of time,” but added that it would be ready to extend its quantitative easing (QE) program if needed. The ECB’s message sent the euro dipping down to $1.1229 against the greenback from around $1.1240.
The decision marked the fifth consecutive quarter that the central bank has held rates steady at 0.00 percent and will come as little surprise to market watchers, who were largely anticipating a continuation of the status quo.
“While the ECB removed hints of possible interest rates cuts from its policy statement today, we expect President Draghi to stress at the press conference that policy tightening is a long way off,” Jennifer McKeown, the chief European economist a Capital Economics, said in a note.
“The only change in the statement is that interest rates are now expected ‘to remain at present levels for an extended period’, rather than ‘at present levels or lower’. This tweak was broadly anticipated and the press conference seems likely to reveal that Council members now see risks to the economy as balanced instead of tilted to the downside,” she added.
Despite removing the line of cutting rates, a slightly more dovish tone from ECB President Mario Draghi is anticipated. This comes after reports leaked on Wednesday pointed to a possible shift in the bank’s assessment of the economic prospects of the region. Draghi is due to speak in front of the media at 1:30 p.m. London time.
Economic indicators have shown a more resilient euro area and inflation has neared the central bank’s target of below 2 percent, though core inflation figures remain subdued.
The Bloomberg report, which was attributed to unnamed euro-area officials, suggested that the ECB would show consumer-price growth falling to around 1.5 percent over the next three years, down from March predictions which estimated growth of between 1.6 percent and 1.7 percent.
Saxo Bank’s John Hardy told CNBC ahead of the announcement that he believed any immed
iate dip in the euro during Thursday’s meeting would be short-lived, but added that the leak may have been used to prevent a euro rally.
“I think the dovish inflation forecasts that were leaked were a way to avoid the euro rallying – which I think it will eventually in the wake of today’s meeting, even if there is a brief dip because very little new is actually announced,” he noted.
– CNBC’s Silvia Amaro contributed to this report.