The ECB pledged to keep interest rates on hold for longer and announced a third round of cheap loans for banks
THE EUROPEAN CENTRAL BANK is usually a predictable beast, shy of springing monetary-policy surprises. Take, for instance, its move to halt new asset purchases last year: it had been telegraphed for so long that traders could have got away with sleeping through it.
But anyone dozing on a trading floor on March 7th would have been in trouble. The ECB announced two measures to counter a slowing of the euro zone’s economy. The bank pledged to keep interest rates on hold for longer—“at least through the end of 2019”—having previously said it would keep rates at rock-bottom until the summer. And it announced a third round of “targeted longer-term refinancing operations” , which will make cheap loans to banks. The euro fell by 0.
Market participants had been expecting TLTROs to be extended eventually, if only to avert a tightening of lending conditions. This coming summer some past loans will stop counting towards regulatory liquidity buffers . That would force banks to seek funding elsewhere, at a higher cost. But the announcement came earlier than expected; the package, says Mr Draghi, also represents extra stimulus.
Although the timing of the shift in interest-rate guidance came as a surprise, it confirmed markets’ expectations that rate rises would only take place next year. It means that Mr Draghi is due to depart in October without having raised interest rates in his eight years at the bank’s helm, and ties the hands of his successor for at least two months.
Some might ask whether the package is big enough. Even with it, the bank expects inflation of only 1.6% by 2021, shy of its target. Mr Draghi still sees mostly downside risks to economic growth, thanks to “pervasive uncertainty” around the prospects for China’s economy, world trade, and Brexit. But “in a dark room”, as he explained at the press conference, “you move with tiny steps—you don’t run”.
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