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ECB holds steady on rates

Mario Draghi

The European Central Bank kept interest rates unchanged, reiterating its intention to do so at least through next summer.

Mario Draghi, president of the ECB, outlined the decisions of the governing council Thursday.

The interest rate on the main refinancing operations of the eurosystem, which provides the bulk of liquidity to the banking system, was kept at zero. Overnight credit for banks, known as the marginal lending facility, was kept at 0.25%, while the interest rate on the deposit facility, which banks in the region may use to make overnight deposits, was held at -0.4%.

Mr. Draghi also said the bank's asset purchase program would remain at €30 billion ($35.2 billion) until the end of September, when the ECB intends to drop it further to €15 billion per month until the end of December.

"To sum up, a cross-check of the outcomes of the economic analysis with the signal coming from the monetary analysis confirmed that an ample degree of monetary accommodation is still necessary for the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term," said Mr. Draghi in his introductory statement.

The ECB's decisions were not a surprise to money managers.

"As expected, today's meeting yielded little new information with regards to the policy outlook following last month's forward guidance update," said Andrew Wilson, CEO of Goldman Sachs Asset Management international for Europe, Middle East and Africa and co-head of the global fixed income and liquidity solutions team, in a reaction comment. "We continue to expect a first rate increase in late 2019, though the balance of risks are skewed toward a later move. Beyond this, we expect one further rate hike to return the policy rate to 0% but see little action thereafter given our subdued inflation outlook. Diminished risk of deflation warrants some policy normalization but 'low-flation' will, in our view, require prolonged monetary accommodation. Of course, that will be for Mario Draghi's successor to decide from November next year."