As the outlook for growth and inflation darkens, the European Central Bank (ECB) announced on Thursday 6 June that it will not raise its key policy rates until mid-2020, a six-month extension of its last meeting in April (see EUROPE 12233/13).
The Governing Council now expects the ECB's key interest rates to remain at their current levels “at least through the first half of 2020, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term”, according to the ECB's press release.
Thus, the interest rates on the main refinancing operations and on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.40% respectively.
“However, we continue to closely monitor the banking transmission channels of monetary policy and the option of mitigation measures”, said ECB President Mario Draghi.
Protectionist threats. The President of the Monetary Institute said that “geopolitical uncertainties, growing threats of protectionism and vulnerabilities in emerging markets are altering the economic climate”. Protectionist threats “have intensified beyond what we thought in March”, added Mr Draghi, in an allusion to the tightening of the standoff between Beijing and Washington. More broadly, Mr Draghi said, the increase in trade disputes calls into question “the entire multilateral order in which we have been living since the Second World War”, creating concern far beyond the immediate impact on growth. In addition, there is “uncertainty about the negotiation of Brexit”.
The Governing Council “is not resigned to having low inflation forever”, Mr Draghi insisted, whose only official mandate is to bring price increases slightly below 2%, which is supposed to stimulate growth and employment.
Giant loans to banks. The ECB has detailed its new programme of giant loans to banks, called TLTRO III (targeted longer-term refinancing operations). Launched in seven waves between next September and March 2021, each with a two-year maturity, they will be granted at rates ranging from -0.30% to +0.10%, depending on the amount of credit redistributed by each bank in the economy.
Above all, Mr Draghi said that the ECB was “determined to act” in the event of an economic downturn and that it had discussed options such as further lowering rates or launching new net debt buybacks, after having acquired around €2,600 billion in assets between 2015 and the end of 2018.
Mr Draghi pointed out, with regard to Italy, that the European Commission was not asking Italy to reduce its public debt quickly. “We all know it's impossible”, he said. (Original version in French by Lionel Changeur)