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  HOME | Business & Economy (Click here for more)

ECB Keeps Rates on Hold as Europe’s Outlook Darkens

FRANKFURT – European Central Bank President Mario Draghi warned on Thursday that risks to the European economy are mounting, even as the bank kept its key interest rates steady.

The assessment marked a change from Dec when the ECB said economic risks were broadly in balance. Draghi cited “the persistence of uncertainties related to geopolitical factors and the threat of protectionism, vulnerabilities in emerging markets and financial market volatility” in explaining the shift.

Still, the ECB refrained from taking new easing steps to address the slowdown. Draghi said Thursday’s meeting was “devoted to an assessment” of the economy, and that while there are implications for the bank’s policy, those weren’t discussed. He said that ECB officials considered the likelihood of recession to be low.

The ECB kept its deposit rate at minus 0.4 percent, where it’s been since March 2016, and repeated previous comments that it will stay there at least through this summer. Many investors don’t expect an increase before mid-2020.

Financial markets have grown fractious in recent weeks as investors worried about a possible turning point for the global economy, which is being buffeted by risks that range from a slowdown in China to a possible messy Brexit.

Central banks around the world have taken a cautious approach in recent weeks as the global economy showed signs of slowing. Federal Reserve officials have signaled a willingness to pause on raising interest rates following last month’s increase. Japan’s central bank on Wednesday kept its key policy rate at minus 0.1 percent, as it revised its inflation forecasts lower. Earlier this month, China’s central bank took steps to stimulate lending by reducing the amount of reserves Chinese banks are required to hold.

Bucking this trend was Norway’s central bank, which on Thursday kept its key interest rate unchanged but confirmed plans to raise it in March.

ECB officials had hoped that the current slowdown would prove temporary. They had only recently started to phase out stimulus policies adopted since the global financial crisis aimed at supporting growth, including a 2.5 trillion euro ($2.8 trillion) bond-buying program known as quantitative easing or QE.

But there are few signs yet of any recovery in Europe. A closely watched business survey, published on Thursday, suggested that growth in the 19-nation eurozone may have ground to a standstill in January.

The results of that survey are “more associated with the ECB loosening rather than tightening policy,” said Chris Williamson, an economist in London with IHS Markit, which compiles the survey. They suggest a quarterly growth rate of just 0.1 percent, he said.

The eurozone economy enjoyed its fastest growth in a decade during 2017, at 2.4 percent, but economists estimate that it grew by just 1.9 percent in 2018 and have been lowering their projections for 2019. The 29 forecasters tracked by Consensus Economics now expect the eurozone economy to grow by 1.5 percent this year, a weaker rate of expansion than the 1.7 percent projected by the ECB.

The eurozone faces a number of headwinds. In France, President Emmanuel Macron is wrestling with rolling mass protests aimed at derailing his economic reform plans. Those protests contributed to a decline in economic activity during Jan, the sharpest in over four years, according to Thursday’s survey.

Meanwhile, holdups at Germany’s key automobile factories pushed Europe’s largest economy to the brink of recession in the final six months of last year.


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