World 25.1.2018 03:38 pm

ECB holds steady course as currency war fears mount

ECB holds steady course as currency war fears mount

European Central Bank governors left their massive support for the eurozone economy in place Thursday, opting not to rock the boat after comments from the US sent the euro soaring against the dollar.

As expected, the Frankfurt institution held its main refinancing rate at zero percent, the rate on the marginal lending facility at 0.25 percent, and on deposits at -0.4 percent, meaning banks pay to park money with the ECB.

It also held fast to plans to buy 30 billion euros ($37.2 billion) of government and corporate bonds per month until September, offering no hints about when it might step back from the mammoth stimulus programme.

All eyes are now on ECB chief Mario Draghi’s highly-anticipated press conference at 2:30 pm (1330 GMT), with financial markets bracing for his response to the recent surge of the euro.

The currency has risen to more than three-year highs on the back of a stronger eurozone economy, and after US Treasury Secretary Steven Mnuchin talked down the greenback on Wednesday.

The euro’s jump poses a headache to policymakers, as it complicates the ECB’s efforts to wind down crisis-era stimulus measures now that the economy is picking up speed but inflation remains stubbornly low.

A stronger euro makes imports cheaper, keeping the lid on consumer prices and putting the ECB’s goal of reaching an inflation rate just below 2.0 percent further out of reach.

It also hurts eurozone exporters whose goods become more expensive, potentially sapping growth in the 19-nation single currency area.

With investors hanging on Draghi’s every word, observers say he will be under pressure to play down talk of reducing stimulus.

“We are seeing a degree of anticipation come into play today, with the ECB meeting bringing a heightened chance that Mario Draghi will seek to talk down the euro once again,” noted IG analyst Joshua Mahony.

The euro has climbed by more than 15 percent against the greenback over the past year and is currently hovering at around $1.24.

 

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