The European Central Bank (ECB) has announced that it will postpone its first post-crisis interest rate hike to 2020 at the earliest. The ECB’s benchmark main refinancing rate currently stands at zero and its deposit rate at minus 0.4%.
The ECB also announced a new round of ultra-low loans for European lenders, a move the markets had not anticipated. Traders had expected Mario Draghi to downgrade growth projections, echoing the OECD’s own forecast, but the markets did expect a new wave of quantitative easing measures targetting banks.
The ECB’s board did lower its growth projections to 1.1% for 2019, down from 1.7% projected in December 2018.
Draghi noted that the economy is currently experiencing “continued weakness and pervasive uncertainty” and announced additional refinancing operations for banks that will start in September and end in March 2021. This will be the ECB’s third Targeted Long-Term Refinancing Operation consisting of two-year loans partly aimed at helping banks to refinance €720 billion in debt.
The announcement comes only three months after the end of the ECB’s unprecedented €2.6 trillion bond-buying programme.
The news saw the euro slip against the US dollar and the Swiss Franc. Meanwhile, Italian sovereign 2-year bond yields dropped to their lowest level since May 2018.
The EU economy has been heavily reliant on exports for its economic recovery. However, the Sino-American trade war and Brexit are weighing on business confidence and investment.