ECB Takes Opposite Direction to Fed, Rates to Remain Unchanged

• ECB Takes Opposite Direction to Fed, Rates to Remain Unchanged

The European Central Bank on Thursday said the interest rates will remain unchanged through the first half of 2020 despite the Federal Reserve sounding dovish and Australia lowering its interest rates for the first time in over three years.

The apex bank, however, said the central bank won’t shy away from taking action if necessary.

Policy makers are “determined” to act if needed amid a “prolonged persistence of uncertainties” and the “rising threat of protectionism,” Mario Draghi, ECB president stated in Vilnius after the Governing Council met.

The governing council agreed to keep rates at record lows and announced details on a program to infuse lenders with cheap loans.

“The Governing Council now expects the key ECB interest rates to remain at their present 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,” – ECB statement.

The U.S Federal Reserve had said the uncertainty surrounding the global economy amid trade talks may impede growth in 2019/2020. Therefore, the central bank would do what is necessary to sustain economic growth.

This comment was interpreted as possible rates cut. In fact, some market experts are already predicting two rate cuts this year, saying the economy may plunge into recession in 2020 without stimulus.

While economists have downgraded ECB outlook for growth and inflation next year to 1.4 percent and 1.3 percent, respectively. The ECB does not see reasons for lower rates considering how low they’ve gone already. Therefore, the central bank may not be raising rates in 2020.

“The ECB was more focused on the global outlook than the strong performance of the euro-area economy in the first quarter. Rising external risks have caused the Governing Council to clearly signal its dovish bias. A rate hike in 2020 is looking increasingly unlikely,” David Powell and Maeva Cousin stated.