Brussels, 22/07/2016 (Agence Europe) -At a meeting of its Governing Council on Thursday 21 July, the European Central Bank (ECB) opted for the status quo for its monetary policy, as it does not yet have total clarity as to the impact the outcome of the British referendum will have on growth and inflation. It therefore kept its deposit rate at -0.4%, the refinancing rate at 0% and the marginal loan facility at 0.25%.
“Over the coming months, when we have more information, including new staff projections, we will be in a better position to reassess the underlying macroeconomic conditions, the most likely paths of inflation and growth and the distribution of risks around those paths”, explained the President of the Frankfurt-based institution, Mario Draghi, following the meeting. “If warranted to achieve its objective, the Governing Council will act by using all the instruments available within its mandate”, he added.
The ECB believes that the results of the referendum in favour of Brexit will have an impact on Eurozone growth in the region of 0.2% to 0.5% of GDP over three years. These figures should be taken cautiously, given the uncertainty which prevails, Draghi explained. He went on to acknowledge that the financial markets reacted to the British referendum with encouraging resilience.
Nor is there any change regarding the programme for the purchase of bonds carried out by the ECB. Operations are continuing at a monthly pace of €80 billion “until the end of March 2017, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim”.
When asked about the situation of the banks in Italy, with balance sheets particularly exposed to non-performing loans, he said that some steps in the right direction had been taken. But resolving the issue will take time, he warned. The longer the situation remains as it is, the longer the banking sector will be functioning less well, he explained. On a more general note, he did not rule out a “public backstop” under exceptional circumstances when the non-performing loan market is not functioning correctly, in order to avoid 'fire sales'. (Original version in French by Élodie Lamer)